High earners nudge Woolworths full-year profit above estimates

WOOLWORTHS yesterday reported full-year profit that beat analysts’ estimates as the South African retailer that has expanded in Australia benefited from a more “resilient” higher-earning customer base.

Diluted headline earnings per share, which exclude onetime items, rose 8.9percent to R4.53 in the year to June, the company said yesterday.

That compared with the R4.45 average estimate of six analysts. Sales rose 16percent to R72.1 billion, with Woolworths’s food offering outperforming clothing and general merchandise.

Woolworths followed Shoprite as retailers report increased sales and profit this week, even as slowing economic growth weakened consumer confidence.

Woolworths also benefited from increased revenue in Australia, where it acquired Sydney-based department-store operator David Jones for $2bn (R28bn) in 2014.

The shares rose 3percent to R88.03 by 10.28am in Johannesburg, on track for their biggest gain in a month. That pared declines for the year to 12 percent, valuing the company at R92bn.

Resilient

The mid-to-higher-income customer was “more resilient”, said the chief executive Ian Moir. “Food sales performed relatively strongly and we are still taking market share.”

The company planned to invest as much as A$100million (R1bn) in David Jones’s food offering over the next three years and saw it becoming profitable in 2019, Moir said.

“We’ve had a great run in foods and I feel now is the time to really put some of that money back and invest in price,” the chief executive said. “We can still take further market share, but we can only do if we maintain great value, particularly in fresh and particularly in meat.”

Clothing sales suffered due to a “horrible, non-existent winter”, Moir said, yet were performing better now the southern hemisphere has entered the spring season.

Cannon Asset Managers portfolio manager Samantha Pauwels said the company’s food division had showed solid margin growth but the three other divisions experienced flat to declining margins.

Pauwels said the group moved towards lower margins as it invested prices in an attempt to increase volumes and gain market share.

“There is no doubt that Woolworths remains a high quality company, however, the group will need to increase its value proposition to customers, especially during these challenging times,” said Pauwels. “The return on equity remains attractively high at 25.6 percent with working capital being very well managed. There is little room for error with earnings expectations for 2017 of 14percent growth, currently trading on a 16:5 time forward (price:earnings ratio) and 4.1 percent dividend yield.”

The retailer was also seeing increased competition in both South Africa and Australia with the arrival of northern hemisphere said.

Woolworths competes mainly with Shoprite and Pick ’n Pay in South Africa.

Woolworths raised the total dividend by 27percent to R3.13 per share.

Woolworths shares rose 1.77 percent on the JSE yesterday to close at R87.01. – Additional reporting by Sandile Mchunu rivals, the company