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Woolworths to cut food prices in tight year

| Economic factors

Upmarket food and clothing retailer Woolworths will focus on bringing its prices down in certain categories after it forecast another hellish year for consumers.

While the company targets high-end consumers, even they are feeling the effects of a weaker rand and high interest rates.

CEO Ian Moir said local shoppers would remain under stress, while the Australian trading environment remained tough.

"Woolworths will focus on building stronger and more profitable relationships with customers. We will make Woolworths more affordable and improve the value perception by investing in price, particularly in food," he said.

Simon Anderssen, an assistant portfolio manager at Kagiso Asset Management, said the move was an indication of more difficult trading "and increasing competition that is likely to put pressure on profit growth".

For the 52 weeks to June 26, Woolworths reported a 16.4% rise in group sales including concession sales, to R72.1bn. Headline earnings per share increased 31.8% to R4.3bn, while operating profit rose 24.7% to R6.97bn compared with the year-earlier period.

Woolworths declared a final gross cash dividend of R1.80 per share, bringing the total dividend to R3.13 — a 26.7% increase year on year. The results included a full year of David Jones’s contributions for the first time.

Sales at the Australian chain had risen 8.4% on a pro forma basis, well ahead of the market, the group said.

Comparable sales rose 7%.

"The transformation initiatives of David Jones are going well," Moir said. A top-end grocery offering was planned at David Jones to exploit a gap in the Australian market.

The group’s Country Road clothing brand reported a 3.9% drop in sales, excluding new stores, due to "the unseasonal warm winter" in both SA and Australia.

Woolworths’s overall clothing and general merchandise division grew sales 9.6%. Excluding new stores, clothing sales grew 4.4% with price inflation of 6.2%.

Chris Gilmour, an analyst at Absa Wealth & Investment, said the results were in line with expectations, "maybe better".

"The food business did exceptionally (well). It looks like they are taking market share, but (not) from Shoprite. They might be taking it from certain Spars and Pick n Pays and, maybe, some independents," he said.

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