By: Edward West - IOL

Woolworths Holdings (WHL) lowered its interim dividend by 28% and has warned that recent US-related global trade relations positions have elevated the macro-economic risk outlook for South Africa, even though consumer confidence has increased.

The higher-end retailer, which on Wednesday announced financial results for the 26 weeks to December 29, 2024, will pay out a half-year dividend of 107 cents per share, after strong sales and market share growth in its Food division was offset by lower contributions from the clothing businesses both in South Africa and Australia, which are undergoing transformation.

“We have a world-class Food business that remains our engine room for value creation, and we are building the foundational capabilities of our apparel businesses to drive long-term sustainable growth,” WHL group CEO Roy Bagathini said in a statement.

Turnover and concession sales increased 5.7% to R40.3 billion, with adjusted earnings before interest and tax 13.7% lower at R2.8bn. Headline earnings a share fell 24.8% to 152.8 cents..

“Softer-than-expected topline growth in our apparel businesses, coupled with pressure on gross profit margins and the increased operating expenditure due to our transformation initiatives, negatively impacted profitability during the period, particularly in the case of CRG (Country Road Group in Australia),” he said.

Notably, the online platform Woolies Dash's sales accelerated by 49.2%. The Bourke Street property in Melbourne, Australia, was sold for R2.6bn, and R792m was recognised as profit on disposal.

Woolworths South Africa increased turnover by 9.1%. Progress was made in Fashion, Beauty and Home’s (FBH) transformation, “which will drive multiple capability shifts across the Fashion business in the medium term,” Bagathini said.

In South Africa, discretionary spend was constrained. In Australia, the effect of high interest rates and elevated living costs was weighing on consumer behaviour and discretionary spend.

In December, the Bourke Street property in Melbourne was sold for A$223.5m (R2.6bn), recognising a profit on disposal. As a result of the sale of the property, earnings per share increased by 20.9% to 245.4 cents per share.

The South African business grew turnover and concession sales by 9.1%. The Food business delivered turnover and concession sales growth of 11.4% and 7.3% on a comparable-store basis. Price movement averaged 6%. Trading space, excluding Absolute Pets, increased by 1.3%.

Gross profit margin increased 30bps to 24.9%, driven by more targeted and effective promotions.

The Fashion, Beauty and Home (FBH) business was impacted by a temporary setback in product flow from the implementation of new processes and systems within the Distribution Centre Transformation initiative, which forms part of a broader transformation.

Also, late supplier deliveries resulted in reduced product availability across much of the store base during the festive season. FBH turnover and concession sales increased by 2.5% and by 2.7%. Woolworths Beauty delivered growth of 17.3%.

CRG was undergoing a restructure of its operating mode following the separation from David Jones in the 2024 financial year. In addition, the apparel trading environment in Australia and New Zealand remained constrained and characterised by reduced footfall and spend, and "intense promotional activity."

CRG sales declined by 6.2% and by 7.8% on a comparable-store basis. Adjusted operating profit of A$14.2m decreased by 71.7%.

In Australia, a gradual recovery in GDP growth, alongside easing monetary policy, was expected, but the retail sector was likely to remain highly promotional until living cost pressures ease.

A reassessment of the carrying value of CRG’s underperforming brands would be done in the second half.

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