Woolworths fighting fires on all fronts

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Woolworths fighting fires on all fronts

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Published Date: 2021-11-18 | Source: INCE|Community | Author: The Finance Ghost

Woolworths fighting fires on all fronts

Woolworths has released a trading update for the 20 weeks to 14 November 2021 as well as a trading statement for the 26 weeks to 26 December 2021.

The share price dropped 6.5% on the day, which gives you an idea of the numbers in the update. The extended lockdowns in Australia have really hurt Woolworths' business and the civil unrest in South Africa hasn't helped either. The premium food market in South Africa has also become a lot more competitive, so Woolworths has to fight fires everywhere at the moment.

Group turnover fell in this 20-week period by 4.5% in rands and by 2.1% in constant currency terms. The silver lining in this number is that online sales grew by 26.4%, now contributing 14.7% to the group's turnover.

Woolworths Food grew turnover by 3.2% in comparable stores, with price movement of just 2.6% and underlying product inflation of 3.8%. The business seems to have less pricing power these days, probably a direct result of Checkers competing so effectively in the market.

The company is quick to remind the market that sales have increased by 14.8% on a two-year basis, so the base period is high. The same can be said for Shoprite though, which doesn't seem to be struggling to grow its grocery business.

Online sales in Woolworths Food grew by 52.6%, contributing 3% of South African sales.

The Fashion, Beauty and Home (FBH) segment grew sales by 7.5% in comparable stores, with price movement of 6.2%. Online sales grew 24.7%, contributing 4.5% of South African sales. The footprint has reduced by 7.4% relative to the prior period, which means trading densities (sales per square metre) have increased considerably.

The Woolworths Financial Services book increased 1.6% but the annualised impairment rate was 4.1% compared to 3.6% in the prior period.

In Australia, lockdowns in New South Wales and Victoria caused havoc for David Jones (sales down 17.3% in comparable stores) and Country Road (down 5.4% in comparable stores). Both businesses reduced trading space significantly and saw decent growth in online sales, especially in David Jones with online growth of 53.7% and a contribution of 36.3% to total sales.

Due to all the disruptions, Woolworths expects earnings to be more than 20% lower in the reporting period that ends in December. It's just too early to know with any certainty how bad things will be.





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