Woolworths seems insulated from consumer squeeze

Woolworths recorded impressive financial performance during the year ended June, suggesting that South Africa’s up-market retailing group is somewhat insulated from the general consumer squeeze sweeping through the sector.

Released early today, Woolworths results came shortly after its peers Pick n Pay, Shoprite, Massmart, produced worrying figures over the past few days and cited deteriorating consumer finances.

Woolworths reported that profit before tax grew 27.1% to R3.6bn during the year ended June. This was achieved from a 23.2% improved turnover of R35.2bn.

Woolworths said this sales growth was leveraged by improved gross margins in both the South African and Australian clothing businesses.

Woolworths CEO Ian Moir said “We are pleased with the strength of these results, especially in light of the tough economic conditions consumers are facing in both South Africa and Australia. In South Africa, we have found that the upper-end consumer remains less constrained, and this, combined with our focus on quality and value has enabled us to continue generating loyal customers in this segment. ”

Moir added that “The benefits of our focus on customer relationships are already visible in these results. Going forward, we will continue to leverage our innovative WRewards programme to better understand and communicate with our customers. WRewards has reached the 3 million active cardholder mark and is a key differentiator for our business.”

The group announced that Woolworths Clothing & General Merchandise (WC&GM) sales grew by 12.3% (52 weeks: 10.1%). Gross profit margins in WC&GM improved from 44.5% to 46.4% as the Group continued to generate benefits from improved sourcing and inventory management.

The group said in the food division, Woolworths’ supermarket strategy, aimed at capturing a greater share of customers’ total food shop, also demonstrated success. “The core produce and protein departments performed particularly well due to improved sourcing, better price and promotion management, and good control of shrinkage and waste.  As a result, food sales grew by 15.4% (52-weeks: 13.3%), well ahead of market growth of 7.1%. Going forward, Woolworths plans to continue its current space expansion with extensions and new developments that will shape bigger chains, allowing for an extended catalogue of products and more choice in food and non-food categories”.

“The Country Road business performed extremely well, and with the acquisition of the Witchery group, sales increased 68.6% in Australian Dollar terms (90.8% in SA Rands). Country Road’s operating costs were well controlled, resulting in an increase in profit before tax from A$22 million to A$64 million before once-off transaction costs. Country Road now contributes 16% to group profit”.

“Woolworths Financial Services’ (WFS) overall debtors’ book reflected year-on-year growth of 15.8%. The quality of the book remained high, with the low impairment rate unchanged from June 2012 at 1.9%. WFS will continue to transform the customer experience by offering its customers simple, convenient and rewarding financial services”.

The group said in line with the increasing trend towards omni-channel business, Woolworths launched its new, user-friendly website in the period under review. This represents a strategic investment in the future of the business and has been well received by customers.

Woolworths also continues to pursue expansion into Africa, exploring growth opportunities in selected new markets while continuing to improve efficiencies in existing markets.

Moirsaid “While we foresee that economic conditions in both South Africa and Australia will remain constrained, trading for the first eight weeks of the new financial year has been in line with expectations in both regions.”


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