Woolworths, the well-known fashion retailer, has reported a significant drop in its annual earnings, primarily due to challenges in its Australian operations. This downturn has overshadowed promising trading results in South Africa.
For the financial year ending in June, Woolworths experienced a 23.9% decrease in headline earnings per share (HEPS), falling to 268.1 cents compared to the previous year. This decline highlights the difficulties faced by the group, particularly within its Country Road Group (CRG) segment, which has struggled due to heavy discounting, high import costs, and a decline in consumer demand across Australia.
Although the overall turnover for Woolworths increased by 6.1% to R81 billion, CRG sales suffered a 5.4% drop. During this period, Woolworths sold approximately R1.56 billion worth of goods weekly, which included both turnover and concession sales. The company noted that following its separation from David Jones, CRG underwent significant restructuring. Unfortunately, this occurred during a challenging market period, leading to reduced profit margins. While CRG made some progress in cutting costs, the steep drop in sales meant that profitability remained elusive. Fixed costs did not decrease sufficiently to align with the weaker sales figures, exacerbating the financial strain in the latter half of the year.
In contrast, Woolies South Africa demonstrated stronger performance. Food sales surged by 11%, driven by increased volumes and robust online demand. The fashion, beauty, and home division also gained traction in the second half, with beauty sales climbing nearly 15% and fashion returning to positive volume growth.
The contrasting performance between the Australian and South African markets has placed pressure on the group’s overall financial health. Woolworths absorbed R917 million in impairments related to CRG, further impacting its bottom line. Additionally, the weaker earnings resulted in a 29.2% reduction in shareholder payouts, with the company declaring a total dividend of 188 cents per share.
Looking ahead, Woolworths has cautioned that consumer spending is likely to remain constrained in both markets. However, the company is optimistic that recent investments and stronger local performance will help facilitate a recovery in the coming year.