Slower winter sales hit Woolworths clothing division
Woolworths, which has been battered by its foray into Australia, is not yet out of the woods. On Thursday the retailer reported an effective 8% drop in sales at its SA clothing operation in the 20 weeks to end-November.
Woolies said sales for the first quarter “were affected by a significantly smaller winter sale”, but pointed out that sales in October, particularly in women’s wear “have shown a positive trend.”
Analysts say Woolworths is struggling to find the balance between attracting new consumers and maintaining its traditional consumer base.
There is a “negative momentum” when it comes to its local clothing operation, said Sasfin Bank senior equity analyst Alec Abraham.
Though it was the performance of David Jones that dragged down the group in its latest set of results, its fashion, beauty and home division (which houses clothing) also disappointed, with turnover dropping 1.5% to R13.68bn the year to end-June.
This division is important for Woolworths because it accounted for R1.7bn, or 35% of its profit before tax , despite only generating 20% of its total revenue. The problems at this division can be seen in its pretax profit plummeting 21.3%. “Clothing is a major driver. They have to get it right,” Abraham said.
The trading update said sales for the fashion, beauty and home division declined 3.3%, despite growing retail space 0.5%. This continued the trend of sales for this operation falling, 2.9% for the second half of the year to end-June.
Though the trading update showed it still had a lot of work to do on its clothing operations, it also showed its other divisions were performing well.
Woolworths Food increased sales by 7.2%, with volume growth driven by low inflation and an increase in promotions. “Food is going from strength to strength. It’s gaining momentum,” Abraham said.
Its food operation was the biggest contribution in both turnover and pretax profit, R29.3bn and R2.16bn respectively in its latest results.
Abraham was pleased by the performance of its Australian operations David Jones and Country Road Group (CRG). David Jones maintained its sales momentum into the new financial year, with sales rising 2.9%. There was a similar story with CRG, whose sales rose 3.4%.
He said the turnaround at David Jones seemed to have stemmed from a change in its design team. Woolies had initially brought in a SA design team, but later swapped it out with the team from CRG.
The group said that earnings per share (EPS) were expected to be 100% higher than the reported EPS for the 26-week period to end-December 24 2017. This was as a result of the impairment in David Jones during that prior period.