Nov 27, 2019
South Africa's Woolworths hit by weak David Jones
Nov 27, 2019
Half-year earnings at South Africa’s Woolworths could drop by as much as 20%, the retailer warned on Monday, sending its shares down more than 4%.
The company, which sells food, clothing and homeware, said an accounting change had compounded the decline, but also pointed to another drop in sales at its struggling Australian businesses and slow trade during the critical December period.
In a trading statement, Woolworths said that while group sales were expected to have risen by 3.8% in the 26 weeks to Dec. 29, headline earnings per share - the main profit measure in South Africa - were likely to be between 15% and 20% lower.
It did not specify the exact reason for the decline. However it said the half-year forecast included new accounting rules applied by the retailer for the first time, excluding which HEPS was likely to have dropped by only between 7.5% and 12.5%.
The retailer tends to be more shielded from a tough economic environment at home than its peers because it targets higher-income customers. Its $2 billion foray into Australia led by outgoing CEO Ian Moir has been its biggest drag on performance.
Moir purchased David Jones in 2014, and since then the chain has struggled amid a tough economy, competition from online rivals and a disruptive refurbishment at its flagship store in Sydney.
In contrast with the year before, the critical trading periods of Christmas and Boxing Day - with the latter especially busy in Australia - fell in the first, rather than the second half, of Woolworth’s financial year.
When adjusted for this shift, David Jones sales fell by 0.5%. Some analysts believe Moir’s purchase of David Jones was not well executed. He is due to step down in February, and be replaced by Levi Strauss executive Roy Bagattini - a change welcomed by some investors keen for a fresh mind at the top after nine years under Moir.
Food sales held up in South Africa - expected to grow 7.8% when adjusted for the trading week changes - but Woolworths’ fashion, home and beauty division, which it has also been trying to turn around, is seen growing by just 0.9%.
The company said it had been hurt in its home market by a series of factors in December.
“The constrained economic environment, exacerbated by the disruption to trade caused by power outages and unseasonal weather in parts of the country, contributed to slower December trade,” its statement said.
Woolworths shares had recovered some ground by 0721 GMT, but were still 3.7% lower.
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