Retailer Woolworths says that interruptions to its businesses in South Africa and Australia over the past several months, including the civil unrest and rioting in KwaZulu Natal and parts of Gauteng in July will have an impact on its results for the first half of the 2022 financial year.
It said that, given the prolonged lockdowns in Australia – and, to a lesser degree, the business disruptions in South Africa – it anticipates headline earnings per share (HEPS) and adjusted diluted HEPS for the 26 weeks ending 26 December 2021 to be more than 20% lower than a year ago.
For South Africa, it said that trading conditions were also impacted by the ongoing effects of Covid-19 and load shedding. To a lesser extent, it said that international supply chain disruptions and supplier delays impacted the availability of imported products.
The group published a trading update for the 20 weeks ending 14 November 2021, on Wednesday (17 November), pointing to a decline in group turnover of 4.5%, and by 2.1% in constant currency terms.
Woolworths employs in excess of 31,000 people in South Africa, and nearly 45,000 across all operations. The group has fashion, beauty and home stores at 267 locations, and 452 food stores located countrywide.
It said that its food business grew turnover and concession sales by 3.2% and by 2.2% in comparable stores, with price movement of 2.6% and underlying product inflation of 3.8%.
Sales have grown by a cumulative 14.8% on a two-year basis, relative to the comparative 2019 period, Woolworths said. Online sales, it said, increased by 52.6% over the current period, contributing 3% of South African sales.
Woolworths said that its Fashion Beauty and Home business continues to make steady progress, with sales growing by 7.4% and by 7.5% in comparable stores.
However, it noted that trade at its Australian and New Zealand unit was significantly impacted by government-enforced lockdowns across the region, including the states of New South Wales and Victoria. The impacted stores represent 70% of its brick-and-mortar sales base.
“Trade during the current period has been severely impacted by the extended lockdowns in Australia, where we have been unable to trade in the majority of our stores,” the group said.
A notable point from the trading update is that online sales grew by 26.4% over the reporting period, and contributed 14.7% to the group’s total turnover and concession sales.
Woolworths launched its same-day delivery service – Woolies Dash – in December 2020, and the group has also begun to trial an electric panel van as part of its online delivery fleet in South Africa.
The group said it is running the trial in collaboration with renewable vehicle company Everlectric and logistics company DSV.
“To power the vans, we source electricity from renewable and sustainable sources, including rooftop solar PV installations. Where an onsite generation of renewable energy is not directly available or practical, we offset 100% of the electricity emissions via renewable energy certificates,” it said.
While Australia is exiting its lockdown restrictions and is expected to see a rebound in sales over the festive season, Woolworths said that there are concerns around the trading environment in South Africa.
“As we consider the outlook for the important festive period, we are well-positioned to benefit from the rebound in sales in Australia, as lockdown restrictions have been lifted. However, in South Africa, the country’s low vaccination rates, together with the possibility of a fourth Covid-19 wave and ongoing power outages, may continue to weigh on consumer spend,” it said.
This concern echoes commentary from a number of economists who this week indicated that the festive season and Black Friday shopping could be subdued as a result of the added financial pressures on consumers.
Debbie Law, retail sector head at corporate and investment bank RMB, said that South Africa is now 19 months into lockdown, and many of the ‘extra’ household funds have either been absorbed into adjusted household spend or have come to an end like some of the grants. And as people return to work, the room has to be made for transport and other travel costs again, she said.
“Despite many people being re-employed again, the country is still suffering from a significant net loss of jobs from lockdown restrictions which have been further exacerbated by the recent KZN riots and related job losses. All of this is placing pressure on consumers’ disposable income and willingness to spend.”