Woolworths store at the V&A Waterfront in Cape Town. Picture: SUPPLIED
Woolworths store at the V&A Waterfront in Cape Town. Picture: SUPPLIED

Woolworths’ share price fell as much as 4.6% to R70 on the JSE on Thursday after the company reported a decline in interim earnings following heavy promotional activity in SA and Australia. The share price ended the day 3.94% lower at R70.50.

This is the first time since December 2007 that the top-end retailer has failed to grow its earnings, though market commentators are optimistic about its long-term prospects.

Kagiso Asset Management’s Simon Anderssen said competition had led to sector-wide discounting over the past six months, slowing sales growth at Woolworths. "It resulted in operating profit declining for the first time in many years and was the main cause of the decline in earnings for the period.

"Future profitability should recover as [it] adjusts to different levels of sales activity and optimises its costs base," he said.

Woolworths derives 58% of its operating profit from Africa and 42% from Australia.

Clothing and merchandise make up 73% of profit, food 24% and financial services 3%. In the 26 weeks to December 25, the retailer reported a 4.1% decline in diluted headline earnings per share to 241.3c. Overall revenue grew 7.1% to R35bn.

Vestact analyst Bright Khumalo said the results came in surprisingly stronger. "We’ve been seeing how fashion retailers have been struggling with the exception of Foschini.

"It’s comforting to see some positives. Woolies spoke of promotional activity, which forced everyone to cut prices in the fast-fashion space.

"Food retailers are struggling for top-line growth in double digits. What will happen in the low food inflation environment? Woolies is going to have to work hard to convince consumers to take their wallet spend there," Khumalo said.

Anchor Capital investment analyst Liam Hechter said the results were largely as expected.

"However, a key positive on first glance was the discipline shown in cost containment.

"Excluding additional costs brought about by new store openings, the existing stores
in SA only increased costs 4.7% in the case of food, and 2.9%
in the case of clothing and general merchandise. Well below inflation," he said.

Woolworths maintained its interim dividend at R1.33.

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