Tough times for consumers sees Woolworths missing out on rebound
Lockdown restrictions in Australia and the July civil unrest in SA hit sales and profits
High-end clothes and food retailer Woolworths expects its first-half headline profit to slump up to 40% as lockdown restrictions in Australia and civil unrest in SA hit sales.
In a sign of the pressure on consumers in an economy that still bears scars from the Covid-19 outbreak, the food business, traditionally a star performer, barely grew. Woolworths’ clothing business seemed not to have benefited from a wider rebound in spending during November.
The update, for the half-year to December 26, showed the food business increased turnover just 3.8%. Excluding new stores, comparable store sales rose only 2.8%.
The retailer said the low growth should be viewed in the context of a high base in 2020, when people spent more than usual on groceries and eating at home, because they could not go to restaurants due to lockdown restrictions. Sasfin analyst Alec Abraham said this argument “holds water as Woolworths Foods handsomely outperformed its peers last year in terms of total and real sales”.
Woolworths is facing competition from on-demand grocery delivery apps offered by Checkers and Pick n Pay. The Woolworths online delivery service has had a slower rollout.
Salmour Research analyst Chris Gilmour predicted that the Shoprite sales update, expected soon, “will be substantially better than [that of] Woolworths.”
Gryphon analyst Casparus Treurnicht said Checkers’ Sixty 60 delivery service is “highly disruptive to its competitors”. Cash-strapped consumers are switching to cheaper goods.
“Competition is getting more intense in a slowing economy and increasingly we will see people trading down.”
He added that the wealthy in SA, a key Woolworths market, are continuing to emigrate. While data is hard to come by, analysts have reported a spike in people leaving the country amid a weak economy, while confidence was dented by rioting and looting in July 2021.
Woolworths’ fashion and beauty business in SA continues to show sluggish results with a 4.2% increase in sales, even as CEO Roy Bagattini initiated a turnaround, cut product lines and hired a new head of the fashion business a year ago.
The underperformance was notable in the light of Stats SA data that showed spending on clothing increased in November. Woolworths saw a decline in clothing sales from mid-November as women’s wear underperformed.
“Woolworths’ fashion and beauty business totally missed out on the crackerjack spending spree among clothing retailers in November,” Gilmour said.
Treurnicht said Woolworths’ clothing is too expensive and it has too many big stores. “They are still sitting with too much space in their portfolio. This affects their bottom line which keeps disappointing the market.”
The company was hit by strict lockdown restrictions Down Under, but Black Friday promotions, festive season trade and the lifting of restrictions in Australia boosted sales in the last six weeks of the period.
Department store chain David Jones reported a 9.2% decline in sales, with comparable store sales dropping 9%, affected by extended lockdown. Trading space was reduced by a further 5.8% year on year, while online sales rose 44.2% and contributed 28.1% to total sales.
Country Road sales declined 3.1% and 3.2% in comparable stores for the half. Online sales increased 3.6% and contributed 33.8% to total sales, while trading space was reduced by 7.4%.
Back in SA, the Woolworths financial services net book grew 5.3% to end-December, compared with a 7.8% contraction as at December 31 2020, reflecting the consumer spend recovery.
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