Woolworths takes a big hit
Challenging economic environments in South Africa and Australia have severely impacted Woolworths’ financial results for the year.
While the group turnover was up 6.5% for the 53 weeks ended 30 June 2024, operating profit declined from R6.6 billion to R6.0 billion, and headline earnings per share dropped 30% from 514.7 cents per share to 364.2.
“Once again, our results have demonstrated the advantages of our diverse portfolio, our trusted brands, key competitive advantages, and the dedication and enthusiasm of our committed teams,” said CEO Roy Bagattini in the group’s financial results for the 53 weeks ended 30 June 2024.
“We continue to make significant progress against our strategic initiatives and are on the right course to building a bigger, better, and far stronger business – fortifying our position as South Africa’s pre-imminent retailer and one of the country’s leading brands.”
The group said that an increasingly challenging trading environment severely impacted its performance over the period due to the macroeconomic environment, which worsened throughout the year in South Africa and Australia.
In South Africa, business operations were hit by congestion at the ports for most of the period and the impact of taxi strikes and Avian flu in the first half of the financial year.
Its Australian business was hurt by sustained interest rate increases and higher living costs, which impacted consumer confidence, footfall and spending.
South Africa
Turnover and concession sales at Woolworths Food still grew by 9.0% for the 52-week comparable period and by 6.9% on a comparable store basis.
Sales growth of 9.6% in the second half of the financial year also included the Absolute Pets acquisition in the year’s final quarter.
“Adjusting for this, H2 turnover and concession sales increased by 8.5%, reflecting continued strong underlying momentum and market share gains,” said the group.
Online sales also increased by 52.8%, accounting for 5.5% of South African sales.
This was driven by Wollies Dash, which saw sales growth of 70%
The group’s gross profit margin increased by 30bps to 24.7%, driven by more targeted promotions, reduced waste, and value chain efficiencies.
These offset the higher cost of the online channel and the ongoing investment in price, with the group investing almost R900 million over the last few years.
Operating expenses also increased by 9.7% and were impacted by the investment in new initiatives and online channels.
Adjusted operating profit jumped by 12.3% to R3.3 billion, with an improved operating profit margin of 7.1%
Sales for Woolworths Fashion, Beauty and Home (FBH) were impacted by the weak macro environment, poor product availability and increased competition following the entry of international online retailers.
FBH turnover and concession sales for the 52 weeks dropped by 0.4%, with comparable store sales dropping by 1.3%.
Sales growth in H2 also declined by 2.9%, with the late onset of winter further impacting sales volumes.
Net trading space dropped by 0.2% relative to the prior period. However, online sales increased by 30.4% and contributed 5.6% of South African sales.
“Notwithstanding inflationary supply chain costs and the margin dilutive impact of a strongly growing Beauty contribution, the improved gross profit margin was maintained at 48.5%, given the continued focus and further improvement in full-price sales and markdown metrics,” said the group.
“Expense growth was well managed to below inflation at 2.6%. Adjusted operating profit decreased by 9.9% to R1.8 billion, resulting in an operating margin of 12.0% for the current period.”
The Woolworths Financial Services book saw a year-on-year increase of 1.8%, excluding selling part of the legal book in June 2024.
The impairment rate for the 12 months ended 30 June 2024 also moderated from 7.3% in the prior period to 7.0%.
Country Road Group (CRG)
Retail trading conditions in Australia and New Zealand also worsened in the second half of the year, with consumer sentiment at near-record lows and household savings at a 17-year low.
In Australian Dollar (A$) denominated terms, CRG sales for the 52 weeks dropped by 8.0% and 13.1% in comparable stores.
This comes off a high prior period base in which sales grew by 12.0% after strong post-COVID pent-up demand in the first half of the prior period. Nevertheless, sales in H2 declined by 11.3%.
Despite these challenges, the Countr Road brand saw its strongest performance on record.
Overall trading space grew by 4.0% due to the ongoing expansion of its wholesale and concession channels. The contribution from online sales also increased to 27.6% of total sales.
“Higher promotional activity to manage inventory levels and the impact of a weaker Australian Dollar on input costs resulted in a 230bps decrease in the gross profit margin to 60.3%.”
“Adjusted operating profit decreased by 66.0% to A$51.3 million, returning an operating profit margin of 4.6%.”
Financials
Although the group has seen several of its key financial metrics decline, it says that its results are not directly comparable to the previous year due to the inclusion of David Jones for nine months in the prior period.
When looking at total group metrics and not continuing operations, revenue increased by R5 billion to R77.35 billion. However, operating profit declined from R6.6 billion to R6.0 billion.
Headline earnings per share dropped from 514.7 cents per share to 364.2.
The total dividend per share also declined from 313 cents per share to 265 cents per share.
| Financials | FY23 | FY24 | % Change |
| Revenue | R72.6 billion | R77.3 billion | +6.5% |
| Turnover and Concession Sales | R73.2 billion | R77.8 billion | +6.3% |
| Operating Profit | R6.6 billion | R6 billion | -10.0% |
| Earnings per share | 551.0 cents | 289.2 cents | -47.3% |
| Headline earnings per share | 514.7 cents | 364.2 cents | -29.2% |
| Total dividend | 313.0 cents | 265.5 cents | -15.2% |
Outlook
In South Africa, the group is optimistic about the Government of National Unity and the suspension of load shedding.
Although inflation is easing, elevated interest rates are still hurting consumer demand. This is also true in Australia, where the macro recovery takes longer than expected.
“Notwithstanding these external factors, we remain confident in our ability to deliver against our strategies and are well placed to benefit from any cyclical consumer recovery,” said the group.
“Furthermore, we have a robust balance sheet, are highly cash generative, and are leveraging our strengthened foundations to optimise our existing businesses and invest in new sources and avenues of growth.”
Read: The big problem for South Africa keeping Standard Bank’s CEO up at night
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