Woolworths cuts interim dividend for third year
Woolworths has cut its interim dividend for the third consecutive year as earnings fell by double digits in the 26 weeks to end-December with low economic growth, poor clothing sales and power outages weighing on its bottom line.
The news sent shares in SA’s second-largest general retailer by market capitalisation down the most in nearly three months, closing 4.42% lower at R42.40 on Thursday.
The Australian market was also tough, with Woolworths warning that the coronavirus outbreak could hit sales during its second half.
Excluding the effect of accounting changes, adjusted profit before tax in the interim period fell 12.3% to R2.4bn for the 26 weeks to December 29, with the group cutting its interim dividend 3.3% to 89c.
In the first half of the 2019 financial year, Woolworths slashed its dividend 15.2% to 92c. In the 2018 financial year, the interim dividend was down 18.4%.
Its earnings per share and headline earnings per share fell 9% and 10.1%, respectively, in the 26 weeks to end-December.
Woolworths said its performance in SA had come under pressure because of constrained economic growth, disruption due to power outages and poor performance in the clothing business.
Speaking after the release of the results, departing CEO Ian Moir said Woolworths’s decision not to fully participate in Black Friday in November 2019 had been an error that should not be repeated.
The frank admission comes as Moir hands over the reins in the multinational retail group to new CEO Roy Bagattini, a former executive at Levi Strauss.
"The pullback in [Black Friday] promotions was a mistake. We lost out. Next time, we will be fully engaged. There was a view that we were trading well and should not offer discounts," he said.
The Black Friday sales would have boosted the Woolworths fashion, beauty and home business. Moir said the womenswear business had performed poorly because of high prices and "design failures".
Gryphon Asset Management portfolio manager Casparus Treurnicht said womenswear is a critical area to get right especially for Woolworths’s business model.
"Women shop for their entire family and getting womens-wear wrong might affect the remainder of the business," Treurnicht said.
"Woolworths got style trends wrong, while its competitors offered clothing items at better prices," he said.
The company’s food business, however, performed better, increasing operating profit 8%. "Food is doing very well. We increasingly see people visiting food alone without browsing clothing," he said.
"The primary aspect of food is their quality focus. As competitors slashed prices to be more competitive they need to maintain quality. We have witnessed cases where quality got neglected by Woolworths’s competitors. This does not rest well with consumers," he said.
Ron Klipin of Cratos Asset Management said Woolworths lost focus in clothing after attempts to chase the fashion and youth market. "That was high risk because they did not understand the dynamics of the customer profile."
Woolworths said bushfires affected sales at David Jones, its Australian upmarket departmental store. The refurbishment of David Jones’ flagship Elizabeth Street store also had a big effect on performance.
Moir said the refurbishments would be completed in the first week of April.
Woolworths said David Jones’s online sales increased 61.8% and made up 10.4% oftotal sales. Moir said the company wanted to increase online sales to about 20% by 2025. With Karl Gernetzky