Woolworths down on poor sales
The retailer also said on Monday that overall sales for the 26 weeks to December 24 grew just 2.5%
The Woolworths share price dropped nearly 9% on Monday as the retailer reported poor sales in some of its businesses and lower headline earnings per share.
Woolworths announced that earnings per share for the 26 weeks to December were expected to be 20% lower than in the matching period in 2016. Headline earnings per share were expected to fall as much as 17.5% to between 200.1c and 212.3c, down from 242.6c.
Woolworths attributed the drop in earnings to the inclusion in the prior period of the profit on disposal of the David Jones’s Market Street property in Sydney, as well as the effect
of a potential reassessment of the carrying value of David Jones assets. This process is under way.
Equity analyst at Vele Asset Managers Matthew Zunckel said the expected decline implied significant margin pressure in one or several of the businesses and management may have resorted to discounting to achieve better sales numbers, which hit the bottom line.
“I wouldn’t be buying the share at current levels, until there is stronger evidence of a turnaround at David Jones.”
The share price recovered somewhat to close 5.5% lower at R59.85 on Monday.
The weak macroeconomic climate in SA has diluted the buying power of consumers and it is no surprise that many retailers have struggled to push up sales. Woolworths is no exception. Overall sales for the 26 weeks to December 24 increased 2.5%.
Analyst at Gryphon asset managers Casparus Treurnicht said Woolworths had not paid enough attention to the past mistakes of local competitors, such as Mr Price, which had failed to read the market.
“What is ironic is that Ian Moir [Woolworths CEO] told an audience some time ago — which I attended — that you
only need to stock the right items and the people will come,” he said.
Since the company’s mid-November trading update, it appears that sales have continued to slow down for fashion, beauty and home. This division delivered a disappointing 0.2% sales decline. However, the food division held to previous trends and was the star performer with a 9.4% sale growth.
Woolworths also had a mixed bag of results in its Australian market with sales at its department store chain David Jones down 3.8%, while its other Australian chain, Country Road, increased sales 5.2%.
“Management overpaid for David Jones, which in hindsight was not such a great business and that caused management to shift their focus from the existing business” Treurnicht said.
The jury was still out on what the margin improvement at David Jones would be, he said.
The group was encouraged, however, by the 0.6% sales increase in comparable stores that the David Jones division showed over the last six weeks of the half-year period.
Treurnicht said news of an impairment at David Jones could lead to a further price drop and possibly mark the end of the decline.
“Similar to Telkom before they turned the business around,” he said.
Woolworths said its financial services debtors book reflected positive year-on-year growth of 4.1% at the end of December 2017, with strong growth in the credit card portfolio.