Major blow for Woolworths

Woolworths’s operations in South Africa, Australia, and New Zealand have been hit by weak consumer finances, and the group expects a massive drop in profits.

In its latest trading update for the 53 weeks ending 30 June 2024 (FY24), the group said that its results were not directly comparable to the prior year as it disposed of its David Jones operations during the 2023 financial year. There was also an additional week in the FY24 reporting period.

Group turnover and concession sales from continuing operations for FY24 grew by 6.2% and 5.6%, respectively, on a constant currency basis.

This came despite the challenging trading conditions, which impacted consumer discretionary spending across our businesses.

Online sales also increased by 13.3% and made up 9.2% of group sales for the year.

That said, turnover and concession sales for the Total Group (including the contribution of David Jones for the nine-month period in the prior year and an additional week in the current period) decreased by 16.4% in FY24.

“In South Africa, the disruption to business operations caused by load shedding and congestion at the ports eased in the last quarter,” said the group.

“Notwithstanding this, the impact of weak consumer confidence arising from the sustained impact of higher living costs and elevated interest rates weighed on discretionary spend throughout the period.”

“Whilst we have no control over the macro factors impacting our business, we have remained resolutely focused on the execution of our strategies and continued investment behind our future growth initiatives.”

That said, the group’s food business saw turnover and concession sales grow by 11.2% and 9.0% on a comparable 52-week basis.

“On a comparable store basis, sales grew by 6.9%, notwithstanding the impact of taxi strikes and Avian flu in the first half of the current year.”

“Price inflation for the period averaged 7.9%.”

Trading momentum also continued in the second half of FY24, with overall growth of 9.6%, improved by including the Absolute Pets acquisition in Q4.

Woolworths Food’s online sales increased by 52.8%, contributing 5.5% of South African sales, and was driven by increased penetration of our Woolies Dash offering, which saw a 71.2% increase.

The group’s Fashion, Beauty, and Home business continued to be impacted by the weak macro environment, poor availability and increased competition from the “disruptive entry of international online retailers.”

Turnover and concession sales over the reporting period grew by 1.4% and declined by 0.4% on a comparable 52-week period.

“Our ongoing focus on improving the quality of our top-line resulted in a further increase in the contribution of full-price sales and a reduction in promotional and clearance sales, which positively impacted price movement of 8.9%.”

“Sales in H2 declined by 2.9% on a price movement of 6.3%, with sales volumes further impacted by the
late onset of winter. Net trading space decreased by 0.2% relative to the prior period, while online sales grew by 30.4% and contributed 5.6% of South African sales.”

The Woolworths Financial Services Book also decreased by 2.9% year-on-year to the end of June 2024. The group said that a sale of part of the legal book in June 2024 reduced its year-end balance, which, if excluded, would see the total book increase by 1.8% year-on-year.

Woolworth’s impairment rate, however, for the 12 months moderated from 7.3% in the prior period to 7.0%.

Australia and New Zealand

Retail training conditions in Australia and New Zealand dropped further in the second half of FY24, with consumer sentiment at near-record lows and a prolonged cost-of-living crisis continuing to hurt footfall and discretionary spending.

Country Road Group (CRG) sales dropped by 6.8% for the year-end and by 8.0% on a comparable 52-week period.

“This should be considered in the context of a high prior-period base, in which sales grew by 12.0%
following the strong post-Covid pent-up demand in the first half. Sales growth in H2 declined by 11.3%,” said the group.

That said, the Country Road brand saw growth, with trading space increasing by 4.0%, while the contribution from online sales increased to 27.6% of total sales.

Financials

“Whilst the Group has maintained its stringent focus on preserving gross profit margin and containing costs, we equally continue to invest behind our key strategic initiatives.”

“This, coupled with the impact of a weaker trading environment, has resulted in negative operational leverage in both apparel businesses.”

“This was particularly prevalent in CRG, which was further impacted by inflated import costs due to a weaker Australian dollar and the business’s inherently higher fixed cost base.”

“Furthermore, the reassessment of the carrying value of the Politix business in CRG has resulted in a non-cash impairment of goodwill, which impacts the earnings per share for continuing operations and the Total Group.”

With this in mind, the group expects its earnings per share from continuing operations for the comparable 52-week period to be lower between 32.0% and 37.0%.

For headline earnings, a 14.0% to 19.0% drop is expected.

The group said this should be considered in the context of the high prior-period base, during which the group delivered record earnings.