Retailer Woolworths is selling slightly less food in existing stores than in 2022 and chose to keep prices below in-store and SA inflation at just over 8%, when it faced cost increases of almost 10%.
Woolworths released a 52-week update to June 25, but said the results were not comparable with the previous year as it sold Australian department store David Jones earlier in 2023.
It said food costs rose 9.9%, but it put up prices on average by 8.3%. This means it is absorbing some increases to keep prices attractive. Its star food business same-store sales increased 6.3%, below inflation of 8.3%, showing it is selling marginally less than the year before. Overall food sales including new stores grew 8.5%, with growth higher in the second half at 9.4%
Because of load-shedding, some consumers have chosen to switch to buying Woolworths’ fruit and vegetables, it previously said, as the group’s goods last longer due to its excellent cold chain, despite power interruptions.
“I am very pleased with how we’ve traded this past financial year, particularly in the context of the challenging macro environment and extended power outages in SA,” said CEO Roy Bagattini. “Our strategies are working, and our businesses are well-positioned to deliver on our growth ambitions.”
The company said the “debilitating energy crisis continues to have a pronounced impact on our economy, as well as on business and consumer confidence”.
Blackouts resulted in increased food waste and a higher overall cost of doing business due to the big increase in diesel costs across both its store network and supply chain, Woolworths said.
The Woolworths results show that only Shoprite is selling the same volumes as the previous year, as consumers come under strain, but Woolworths’ food business commands a higher profit margin than that of its peers. Pick n Pay sold almost 10% less in the half-year to end-August, with Woolworths’ overall food sales flat and Shoprite growing its Checkers sales by 18% in the year to July 2.
Woolworths Financial Services, which includes in-store accounts and credit cards, saw increased bad debt. This is in line with Capitec and Absa recording increased bad debt as South Africans struggle to make ends meet.
The impairment rate for the 12 months to end-June was 7.3%, compared with 4.7% the previous year, “reflective of rising consumer strain in the current macroeconomic climate, which has resulted in elevated default rates, particularly in the last quarter of the year”.
Woolworths’ clothing and home division continues to improve and is selling less on promotion, as planned. It put through an 11.6% average price increase reflecting its increased full price sales, which usually means styles and fashion are resonating with consumers. Its sales grew 8.9%, while those for same stores were 8.3%.
In its second-half fashion, beauty and home sales slowed to 6.7% but was above that of its competitors, Woolworths said.
Growth also slowed in the second half in Australia, where it owns the Country Road Group, as higher inflation and interest rates hit consumers. It grew sales 12% overall but only 0.6% in the second half.
It said its headline earnings per share will equal 405.6c-442.4c, which is 10%-20% higher than the prior period.
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