Business
Woolworths Faces Major Earnings Hit Amid Economic Challenges in South Africa and Australia
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South African retail giant Woolworths has announced a significant decline in its expected headline earnings for the 26 weeks ending 29 December 2024, citing challenging economic environments in both South Africa and Australia. While its food business continues to thrive, weaker-than-expected performance in its apparel businesses has led to a projected earnings drop of 22% to 27% compared to the prior period.
Economic Struggles Weigh on Apparel Businesses
Despite a 5.7% increase in turnover and 6.2% growth in concession sales, Woolworths is feeling the pressure of constrained discretionary spending in South Africa and Australia.
- In South Africa, while consumer sentiment has improved due to declining inflation, eased interest rates, and the suspension of load-shedding, spending on apparel has remained weak.
- In Australia, improved consumer sentiment and a strong Black Friday period were overshadowed by high interest rates and rising living costs, which continued to weigh on discretionary spending.
The Fashion, Beauty, and Home (FBH) and Country Road Group (CRG) divisions are undergoing significant restructuring, further contributing to the decline.
Food Business Provides a Silver Lining
Woolworths’ food business continues to outperform, delivering 11.4% growth in turnover and concession sales.
- On a comparable-store basis, sales increased by 7.3%, with online sales rising by an impressive 37.2%, contributing 6.4% of total food sales.
- Woolies DASH, the group’s online delivery service, recorded remarkable sales growth of 49.2% for the period.
Apparel and Beauty Performance
The Fashion, Beauty, and Home (FBH) segment showed modest growth:
- Turnover and concession sales rose by 2.5%, with comparable-store growth of 2.7%.
- However, sales growth slowed to just 0.9% in the final eight weeks of the period due to supplier delays and system changes at distribution centers.
In contrast, the Beauty business remained a standout performer, achieving 17.3% growth over the period.
Country Road Group (CRG): A Struggle Down Under
The Country Road Group (CRG), operating in Australia and New Zealand, has faced substantial challenges:
- Sales declined by 6.2% overall and 7.8% on a comparable-store basis, impacted by promotional pricing and cautious consumer spending.
- The ongoing restructuring of CRG is set to conclude by the end of the 2025 financial year, but it has demanded significant internal focus, impacting short-term performance.
Financial Overview and Key Developments
Following the sale of David Jones in 2023, Woolworths retained a flagship property in Melbourne, which was sold during the period for A$223.5 million (approximately R2.5 billion). The profit from the sale contributed to an 8% to 23% increase in earnings per share (EPS) compared to the prior period.
However, headline earnings per share (HEPS) are expected to drop:
- From 203.3 cents in the prior period to 148.4–158.6 cents, reflecting a 22% to 27% decrease.
- Adjusted diluted HEPS (adHEPS) is also projected to fall by 16% to 21%.
Outlook for Woolworths
Woolworths remains optimistic about its food business and online growth, but the group acknowledges that economic conditions in both South Africa and Australia will continue to challenge its apparel divisions.
The company is committed to completing the CRG restructuring and adapting to evolving consumer trends. However, with discretionary spending still constrained and competition intensifying, Woolworths faces a tough road ahead as it works to balance growth and profitability.
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