Woolworths’ new pricing strategy paying off

Retail group Woolworths says that its new pricing strategy has been well-received by customers, helping to boost sales in the last six weeks of 2020, as South Africa continued to feel the impact of the Covid-19 crisis.

In a trading statement on Monday (25 January), the group reported increased sales for the 26 weeks ended 27 December 2020, up 5.3% compared to the corresponding period in 2019.

This was driven largely in the Woolworths Food segment in the final weeks of the year, which saw sales increase 12.0%, and deliver further market share gains.

Food sales over the 26-week period grew by 10.9% and by 9.4% in comparable stores, with net space growth of 0.4%.

Woolworths said that its price investment strategy – where it committed to investing R1 billion into the business to keep prices of select items stable, remains a priority for the business.

Price movement was 7.1%, impacted by mix, while underlying product inflation averaged 4.8% over the period.

It also noted the success of its digital strategy, which saw online food sales grow by 158.5%, contributing 2.2% to sales, overall. This segment was boosted by the expansion of the click and collect offering, and successful trial of an on-demand delivery service, it said.

The same successes were not felt in other segments, however.

Woolworths Fashion, Beauty and Home continued to take strain, seeing sales decline 11.2% over the period, with comparable store sales 11.0% lower on a 2.4% price movement.

While online sales more than doubled, this was not enough to counteract the effects of reduced foot traffic, a drop in Black Friday participation and lower need for formal wear.

The Woolworths Financial Services segment reflected year-on-year contraction of 2.2%. The annualised impairment rate for the six months ended December 2020 was 4.1%, compared to 3.3% for the prior period.

“Trading conditions across the group continued to be impacted by Covid-19, with significantly reduced store footfall, particularly in larger shopping centres and CBD locations,” Woolworths said.

“Considered actions to stimulate trade, strengthen online capabilities, manage inventory levels and execute property sales, have resulted in positive cash flows and a continued reduction in net debt levels in both South Africa and Australia.”

The group advised that its earnings per share and headline earnings per share would be significantly higher for the year – although this is largely due to property sales and renegotiated leases in Australia.

Taking these into account, earnings are anticipated to be between 70% and 80% higher than in the previous period. Excluding profits from the property sale, headline earnings are expected to be between 50% and 60% higher.

Excluding both the property sale profits and lease negotiations, diluted headline earnings are expected to be between 17% and 22% higher, it said.

Shares in the group advanced in early trade on Monday. Woolworths is expected to publish its results for the 26 week period on 25 February 2021.