Woolies pins hopes on Cyril

Woolworths has pinned its recovery on SA’s new political leadership under President Cyril Ramaphosa, as its woes have prompted it to cut its interim dividend for the first time in eight years.

Woolworths group CEO Ian Moir said the SA retail environment was tough due to increasing political uncertainty, credit rating downgrades, high unemployment and low consumer confidence. These problems worsened under former president Jacob Zuma’s administration.

Moir said Ramaphosa’s administration has changed the mood of South Africans, resulting in consumers being more confident about their future and financial well-being. “That confidence will encourage consumers to spend more,” Moir told Moneyweb, after Woolworths revealed its worst results since 2010.

Woolworths is in the throes of a retail storm in SA and Australia. Its problems overseas stem from its David Jones department chain business, which makes up a third of group turnover and more than 40% of trading profit.

Group turnover grew 2.5% to R38.8 billion in the 26 weeks to December 2017 compared with last year. Its headline earnings per share dropped 15% to 206.3 cents while its interim dividend declined 18.4% to 108.5 cents.

In SA, Woolworths faced slower sales in its clothing division, with womenswear, specifically, underperforming. Comparable store sales (excluding new stores opened) fell 3.4% but sales volumes fell 4.1% (excluding 0.7% product inflation).

Moir said the clothing underperformance was due to several “mistakes”, as its offering for women aged 35 to 55 was “juvenile”.

A bright spot for Woolworths is the food segment, which continues to be a mainstay. Food sales grew 9.4% while comparable sales grew 5.3%. Excluding product inflation of 4.4%, sales volumes grew 0.9%.