Woolworths’s share price spiked to its highest intra-day level since 2017 as it reported improved clothing sales in SA, and at least a 70% increase in headline earnings.
The share rose to R74.79 during the course of the day and was 4.76% higher at R73.33 by the close.
The company, which lost billions in its ill-fated acquisition of David Jones in Australia, appears to be turning around with the sale of the department store down under and an improvement in its SA clothing business. It is also keeping food price increase lower than its internal inflation as the competition for the well-heeled customer becomes more fierce.
Headline earnings for the half-year ended December 25, a main profit measure used in SA, will be 70%-80% higher at R2.85-R3.02 when Woolworths releases half-year results in March.
Clothing sales figures suggest that CEO Roy Bagattini’s plan to improve its fashion business is working, with turnover in that division up 11.2%.
Same-store fashion, beauty and home sales grew 11% — revealing the increase was not from expansion — and prices were up 10.8%. Woolworths continues to reduce store space, cutting it by 2.2% in the period.
An increase in full-price clothing sales and a decrease in markdowns show styles are resonating with consumers, and it is having to rely less on markdowns to flog goods.
Woolworths noted that load-shedding in SA was leading to “considerable disruption” and increased food waste and lost sales of fresh food. It is also spending an increased amount on diesel to power generators to keep its food stores open during the extended power outages.
Showing just how much pressure its food business is under from constrained consumers and competitors such as Checkers and Pick n Pay, it has kept food price inflation at 6.9%, lower than its own in-store product inflation of 8.4% .
It is working to “further enhance our overall customer value proposition”.
Suggesting SA consumers may be relying more on credit, its financial services book — which includes credit cards and in-store accounts — rose 17.2% year on year as consumers spent more, while new business and credit card sales also advanced.
Turnover jumped by almost one-fifth in the half-year to December 25 as customers returned to physical stores in Australia.
But the company, was quick to point out that the 26-week reporting period was not directly comparable because of the effect of lockdowns in Australia in the prior period.
“The return of customers to physical stores, particularly in Australia, resulted in a substantial increase in brick-and-mortar sales, with the contribution of online sales moderating to 10.9% of total turnover and concession sales, compared to 13.7% for the prior period,” the retailer said.
However, the company said that the last six weeks of its reporting period, during which turnover and concession sales in Australia increased 8.8%, driven by strong Black Friday and festive-season shopping, could be used for direct comparison.
In Australia and New Zealand sales grew despite higher inflation and interest rate hikes worldwide.
The sales of Country Road grew more than one-quarter (25.5%) because of strong performances from its Country Road, Politix and Witchery brands. David Jones’ sales rose 31.8%.
In December, Woolworths announced the sale of department store David Jones — which generated about 4% of its profit before tax in Woolworths’s 2022 results — to Australian private equity fund Anchorage Capital Partners for an undisclosed sum, which is believed to be a fraction of what it originally paid.
In December Bagattini called it a “major milestone” in the company’s repositioning as the exit from the Australian department store marked an end to a costly chapter. It paid R21.4bn for the business in 2014 under then-CEO Ian Moir, but has already written down more than R12bn of that.
The sale, set to be completed by end-March, will enable Woolworths’s management to focus attention and capital on its SA business. It will remain in Australia with its successful Country Road clothing business in which it first invested in 1998.
“Management expects to realise value in excess of the carrying value of the David Jones assets,” the company said on Thursday, adding that David Jones will be reported as a discontinued operation in its interim results.
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