Aussie ops put the skids on Woolworths
WOOLWORTHS shares fell sharply on Friday morning as investors fretted over the retailer’s health after it released a disappointing trading update.
The stock fell 8% to R64.68 soon after the JSE opened on Friday, its biggest one-day fall in 11 months. By the end of trade shares had recovered slightly, closing down 3.54% at R67.81.
Peter Takaendesa, an investment manager at Mergence Investment Managers, said part of the reason for the group’s poor results was Woolworths’ Australian operations.
“There were some high expectations that they are going to do well there, but even they admitted that things are not going as they had expected.
“Things are much slower than what they had hoped to see; that’s really coming through and getting the market disappointed,” said Takaendesa.
In the 19 weeks that ended on November 6, sales at Australian operation David Jones rose a marginal 2.2% in Australian dollars, Woolworths said. Country Road Group sales declined 2.8% in Australian dollars and sales in comparable stores were 4.9% lower and retail space grew by a net 2%.
South African operations were also disappointing.
Woolworths clothing and general merchandise sales increased by 2% and food sales increased by 9.1%, with price movement of 9.2%.
“The key thing is that the fundamentals are quite tough and the valuations have been quite high, and that’s really where we are coming from.
“There is no one really surviving. If you look at Mr Price and Woolworths, they are all down quite a lot and it goes beyond what is happening,” said Takaendesa.
In the year to date, Woolworths’ share price has fallen about 34%, while the JSE General Retailers Index has shed 21.72% since the beginning of this year.
This week TFG, which owns Foschini, said group turnover rose 16.9% to R11.4-billion and headline earnings rose 8.1% in the six months to the end of September.
Takaendesa said TFG results were “misleading” because the retail environment constrained.
“If you take the like-for-like growth, then those numbers were not inspiring. Volumes were still under pressure. I wouldn’t be expecting much from that; it’s just going to remain more challenging for a bit a longer,” he said.
Like-for-like growth for the three months to September was remained about 2% and volumes were down 7%, and these put through the price inflation of 9%.
“That could be misleading because it includes the Phase Eight acquisition that they made in the UK,” said Takaendesa.
Similarly, home and apparel retailer Mr Price Group is expected to suffer some of the same blows when it releases its interim results tomorrow.
On Friday, Mr Price closed 7.15% lower at R133.70.
Raphael Nkomo, an investment manager at Prescient, said there was no value in the consumer discretionary products sector.
“Although there is a bit of quality in those stocks because you tend to be a little bit more profitable and a little bit more stable in terms of the earnings,” said Nkomo.
While TFG has shed 11.89% and Mr Price 33.84%, retailers have been buckling under the pressure on credit sales because of new regulations that are forcing more consumers to use cash instead of credit cards.
TFG reported that cash sales increased 48.3% compared with the 5.9% gain in credit sales while Woolworths Financial Services debtors’ book reflected year-onyear growth of 2%.
“Now what happens is that the market pays for each risk at different times,” Nkomo said.
“Right now the market is paying for value, so if you have anything that is value you would have done well.” DOWN UNDER: The fall in the Woolworths share price has been blamed on its Australian operations
The market is paying for value, so if you have anything that is value you would have done well