Woolworths takes a hit

Woolworths has seen its earnings and profits drop as consumers in South Africa and Australia battle to find extra cash.

Although the group’s financials for the first half of the 2024 financial year (H1 2024) are not comparable to the prior period (H1 2023) – as David Jones was included in H1 2023 – the group’s results were still heavily impacted by interest rate increases and elevated living costs.

This led to a greater-than-expected drop in discretionary spending in both geographies.

Group turnover for the period was down 16.7% to R37.5 billion – however, when looking at its continuing operations, the value was actually 5.1% higher.

The same can be read across its results, but even on a continuing basis, profit before tax was 14.2% lower than the year before, and headline earnings dropped 7.5%.

In South Africa, business operations were severely impacted by high levels of load shedding, port delays and the impact of Avian flu on key foods.

“The results should also be considered in the context of the high prior period base in which adjusted profit before tax from continuing operations grew by 32.3%,” the group said.

South Africa

Woolworths Food saw turnover and concession sales grow by 8.4% and 7.2% on a comparable store basis, respectively. This was despite load shedding, Avian flu, and the widespread taxi strike in Cape Town.

Sales increased by 8.6% in the last six weeks of the period, which underlined volume growth, with product price inflation at 7.9%

Online sales also increased by 46.6% (5.1% of total South African sales), driven by the Woolies Dash.

Gross profit margin increased by 0.8% to 24.6%, but there was an increase in operating expenses of 11.1% due to a rise in operating expenses from new initiatives and higher cost inflation,

The Food Business saw adjusted operating profit grow by 13% to R1.59 billion, with an operating profit margin of 7.0% for the current period.

The group’s Fashion, Beauty and Home business over the 26-week period was impacted by poor availability due to congestion at the ports.

Turnover and concession sales increased by 2.2%, with comparable store sales growing by 1.5%.

Full-price sales positively impacted price movement by 11.4%. Net trading space increased by 0.3% compared to the H1 2023, while online sales increased by 26.9%, contributing 5.4% of South African sales.

The Fashion, Beauty and Home business saw a gross profit margin maintained at 48%, while adjusted operating profit decreased by 5.3% to R927 million.

In addition, the Woolworths Financial Services (WFS) book saw a year-on-year increase of 4.9% to the end of December 2023, which was driven by growth in new accounts and credit card advances.

The annualised impairment rate for H1 2024 was 6.3%, compared to 5.5% in H1 2023.

“While this reflects the strain that consumers are under in the current macro-economic environment, it is reducing from the peak of the last quarter of the previous financial year,” the group said.

Profit after tax for WFS increased from R60 million in H1 2023 to R122 million in H1 2024 (excluding the R52 million IFRS 17 transition adjustment).

Country Road Group (CRG)

Trading conditions in Australia and New Zealand have declined further, with consumer sentiment in Australia at near-record lows and household savings the weakest since the global financial crisis.

The retail industry has also been impacted by the shift from goods to services, with CRG sales for the current period declining by 5.0% and by 9.5% in comparable stores. This came off a strong H1 2023 base in which sales grew by 25% following Covid-19.

“Given the impact of negative operational leverage arising from the softer top-line performance, adjusted operating profit decreased by 46.1% to A$50.2 million (R625 million), returning an operating profit margin of 8.5%, compared to 15.0% in the prior period,” the group said.

Financials

Overall, when looking at continuing operations, earnings per share and headline earnings per share decreased by 7.4% and 7.5%, respectively.

The group also dropped its dividend by 6.6% from 158.5 cents per share in H1 2023 to 148 cents in H1 2024.

Outlook

“The outlook for the rest of the financial year is expected to remain challenging. Whilst inflation is expected to ease gradually, interest rates across both geographies are likely to remain elevated, placing continued pressure on consumer disposable income,” the group said.

“In South Africa, the ongoing energy crisis and port and infrastructure challenges are expected to further constrain economic activity. In addition, the upcoming elections and ongoing global geopolitical tensions increase uncertainty.”

“Notwithstanding this challenging macro backdrop, we remain confident in our ability to deliver against our strategies, and are well placed to benefit from any cyclical consumer recovery. We have a robust balance sheet, are highly cash generative, and are leveraging our strengthened foundation to optimise our existing businesses and invest in new sources of future growth.”

The group also announced that Chairman Hubert Brody, who will step down following the AGM in November 2024, will be replaced by Clive Thomson, who is currently the chairman of the group’s Audit and Treasury Committees and a member of several other committees.

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