Food and clothing retailer Woolworths had “tough” news for shareholders yesterday when it posted an 11,7% drop in interim earnings per share.
However, despite rising bad debt, slowing sales and an investment outlook that had been “too bullish”, the retailer said it would continue to expand floor space as it looked beyond the cycle.
Woolworths reported headline earnings per share for the half-year to December of 56,9c versus 64,4c a year before.
If a once-off empowerment cost of R25,5m was excluded, headline earnings per share would have been down 5,9%.
Revenue rose 17,7% to R10,6bn from R8,97bn previously. Operating profit was 2,9% up, from R957,6m to R985,8m, but profit after tax was down 17,3% to R469,2m from R567,2m.
Nedcor Securities retail analyst Syd Vianello said trading this year and next was expected to be bad for the group. Costs had gone through the roof, and the group had not reacted fast enough to change in the economy.
Vianello expected flat second half earnings, despite an extra week in the reporting period.
Financial director Norman Thomson said there had been a slight contraction in gross profit locally, due mostly to a change in the mix. The group also had higher costs as it rolled out stores and its distribution centre.
CEO Simon Susman said consumer confidence had declined, and the second quarter had one of the sharpest downturns he had seen in nearly 40 years. The second quarter, to December, yielded “some of the lowest retail growth”, he said. Rising interest rates had hit Woolworths' typically up-market customers hardest.
Bad debt, notably in the Visa card division, also took its toll. Thomson said net bad debts and the provision for bad debts had been increased.
Vianello said the company would benefit from selling the unit, but with all its bad debt, he was not sure who would buy it.
Susman said the company had been too bullish with its investments, expecting better growth. “We thought the party was going to continue.”
The company had also moved too slowly in a changing market, and had not been quick enough to differentiate its range.
Now, however, the retailer was looking at cutting costs, pricing aggressively and improving productivity and availability.
However, Vianello said cutting prices would hit margins.
Susman said the group's market share in the food segment had grown, and it was “geared up to trade through this period”.
The group had an “aggressive” pipeline of store rollouts next year, and was viewing the cycle as a temporary setback, said Susman.
Woolworths was 6,54% or 85c, down at R12,15 at close of trade, although it said it was maintaining its interim dividend of 29,5c.
Source: Business Day
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