Woolworths shares hit six-month high on solid sales growth
The retailer’s food business has bolstered results amid an upturn in the fashion, beauty and home segment
Woolworths’s shares rose 6.4% to their best level in six months on Thursday after the high-end retailer said sales in the year to end-June rose 5.9% thanks to its SA food business.
“Food sales momentum continued into the second half,” the group said. Annual sales in that segment rose 9.8%, or 7.7% when accounting for the extra week included in the financial year. Selling prices were up 1.8%.
Food sales volumes were boosted by “further investment in price, innovation and convenience”.
The domestic fashion, beauty and home business improved sales significantly in the second half thanks to “a focus on core ranges and basics, backed by improved availability”, Woolworths said.
Group sales grew 5.9%, or 3.9% when stripping out the extra week.
Woolworths’s shares were 6.4% up at R52.21 in mid-morning trade on Thursday, the best level since mid-January.
Nic Norman-Smith, chief investment officer at Lentus Asset Management, said the sales numbers were “reasonable given the current environment”.
“The food contribution was clearly the shining light, as they maintain their dominance of the high-end food space.”
But Norman-Smith said Australian department-store chain David Jones remains a concern.
“The current valuation appears reasonable, which does lower the downside risk for shareholders despite the ongoing business issues,” he said.
Woolworths said sales growth was once again dented by David Jones, whose 1% increase in local-currency sales translated into a 0.8% decline when accounting for the extra week.
“Retail trading conditions in Australia remain challenging,” Woolworths said.
David Jones was hampered by sales disruptions linked to the refurbishment of its flagship store, which will probably be complete by the third quarter of the 2020 financial year, the group said.
Online sales at David Jones grew 46.8% and now contribute 7.7% of total sales.
In Country Road Group, online sales in Australasia grew 12.9% and now represent 20.3% of sales.
“As the contribution from online sales increases, the reduction in unproductive space remains a priority,” Woolworths said.
Barclays Research said in a report last week Australia’s retail sales remained “lacklustre” in May, with nominal retail sales at department stores falling compared to both a month and a year before.