Woolworths marks down earnings

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Woolworths marks down earnings

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Published Date: 2020-01-28 | Source: Stephen Gunnion | Author: Stephen Gunnion

Woolworths marks down earnings

Strong food sales stood out in a tough period for clothing and homeware and continued difficult conditions in Australia.

Woolworths has warned of a drop in first-half earnings after the weak economy, load shedding and bad weather weighed on sales in its home market. Australian sales also remain constrained as it completes a refurbishment of one of its flagship David Jones stores and after it withdrew Country Road stock from competitor Myer.

In trading statement, the food, clothing and homeware retailer said headline earnings per share for the six months to end-December would decline by between 15% and 20%, exacerbated by the adoption of the new IFRS 16 accounting standard. Excluding the impact of IFRS 16, they would be 7.5-12.5% lower. Its shares fell as much as 5.1%.

Woolworths has been under pressure due to the poor performance of David Jones, which it bought for A$2.1 billion (R20.8 billion) in 2014 but has impaired a number of times, most recently to A$965 million due to the cyclical downturn that impacted performances across the Australian retail sector. It also admitted to poor or delayed execution in certain of its key initiatives. Earlier this month, it said CEO Ian Moir, who led the acquisition, would step down in the middle of next month to be replaced by Roy Bagattini, president of Levi Strauss & Company for the Americas. Moir will continue as acting CEO of David Jones.

The group reported a 3.8% rise in sales for the 26 weeks to 29 December, with constant currency turnover up 4.6%. It said its results were skewed by the 53-week trading year in 2019, which resulted in the Christmas week falling into the first half of the current year but the second half of the previous year. The day after Christmas is a big trading day in Australia, it added.

SA Fashion, Beauty and Home sales were up 2.2%, with comparable growth of 0.9% after adjusting for the shift in trading weeks. It raised prices by an average 4% and increased its floor space by 1.2%. Food sales increased by 8.1% and 7.8% after adjusting for the shift, with comparable store sales up 5.4% and price movement of 5.1%. It said it had maintained positive volume growth and continued to grow its share of the food market.

In Australia, sales at David Jones were up 4.9% but shrank by 0.5% after adjusting for the shift of the Christmas week. The disruption from the refurbishment of its Elizabeth Street store in Sydney had reduced, with more floors opening for trade. In the meantime, online sales rose 62% to make up more than 10% of total sales.

Country Road reported a 2.5% decline in sales but were 3.3% higher excluding the impact of the Myer exit. Comparable store sales grew by 0.1% and online sales in Australasia rose 6.2% to comprise 21.4% of total regional sales. As the contribution from online sales increased, Woolworths said the reduction of unproductive space remained a priority in David Jones and Country Road.

Its shares closed 3.2% down at R46.15 yesterday.





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