Retailer Woolworths on Thursday (25 February) reported strong growth in its food division for the 26 weeks ended 27 December 2020, with improved trading momentum across all businesses over the final six weeks of the reporting period.

Group sales for the period increased by 5.3% compared to the 26 weeks ended 29 December 2019, but declined by 0.5% in constant currency terms.

“South Africa’s weak macro environment and consumer confidence has been further exacerbated by the second wave of Covid-19, placing further strain on consumer discretionary spend,” it said.

• Turnover +5.8% to R39.6 billion
• Turnover and concession sales +5.3% to R43.0 billion
• Profit before tax +66.2% to R3.6 billion
• Adjusted profit before tax +24.6% to R2.7 billion
• Headline earnings per share +58.3% to 261.1 cps
• Adjusted diluted headline earnings per share +19.4% to 193.7 cps

Woolworths Food delivered further volume and market share gains, “driven by innovation, convenience and the focused price investment strategy,” the group said.

Sales over the 26-week period grew by 10.9% and by 9.4% in comparable stores, with net space growth of 0.4%. Online sales grew by 158.5%, contributing 2.2% to sales, with the expansion of delivery options.

Price movement was 7.1%, impacted by mix, while underlying product inflation averaged 4.8% over the period, it said.

Adjusted operating profit increased by 23.2% to R1 531 million, returning an operating margin of 8.2% for the half.

Fashion, beauty and home

Woolworths said that while FBH commenced the repositioning of its fashion business, performance remains disappointing, with sales declining by 11.2% over the period, and comparable store sales 11.0% lower on a 2.4% price movement.

Online sales grew by 118.8%, contributing 4.0% to South African sales. Net space was reduced by 1.9%, in line with its focus on improving store operating efficiency, it said.

Gross profit margin decreased by 0.7% to 45.9% as a result of increased promotions and price investment, together with higher clearance in December. Expenses were well controlled, declining by 1.6%, notwithstanding additional Covid-19 related costs.

Adjusted operating profit decreased by 39.9% to R582 million, resulting in an operating margin of 9.1% for the half.

Financial services

The WFS book reflected year-on-year contraction of 2.2% at the end of December 2020. The annualised impairment rate for the six months ended December 2020 was 4.1%, compared to 3.3% for the prior comparable period.

Looking ahead, Woolworths said that the trading environment is challenging and uncertain and is expected to remain so throughout the second half of the year.

“The economic outlook for South Africa is bleak, with the consumer under significant strain, and the possibility of further waves of infection and delays in the rollout of vaccines likely to further exacerbate the pressure on discretionary spend.”

“Whilst we are pleased with some of the progress that we have made to date, we remain steadfastly focused on the other elements of our strategic priorities, including the repositioning of FBH, maintaining our leadership position in Food, our real estate optimisation efforts in David Jones and driving growth through digital, online and data,” it said.

The company decided against an interim dividend given the uncertainty around Covid-19.