Woolies facing many battles

POOR TRADING UPDATE: UNDERSCORES SA AND AUSTRALIA WOES Woolworths is facing war with its competitors, SA’s ailing economy and burning cash on David Jones in Australia.

Woolworths shares sunk by nearly 9% yesterday morning after it posted a poor trading update.

Shares of Woolworths sunk by nearly 9% yesterday morning after it posted a poor trading update, underscoring its many woes in SA and Australia. Woolworths said its interim headline earnings per share for the 26 weeks to December 24, 2017, was expected to fall as much as 17.5%.

Staying resilient during uncertain times was once Woolworths’ hallmark, making it a darling in SA’s retail sector.

However, Woolworths is now facing many battles: an intensified war with its competitors via aggressive promotions for market share, SA’s ailing economy and the problem of burning cash as a result of the slow turnaround of its Australian business, David Jones.

Woolworths’ group sales increased by 2.5% over the period under review, which failed to keep in line with inflation.

The star performer was Woolworths Food sales, which increased by 9.4%, while comparable store sales (excluding new stores opened) grew by 5.3%. Stripping out its internal food inflation of 4.4%, sales volumes advanced by 5%.

Woolworths’ fashion, beauty and home sections remain problematic, as sales decreased by 0.2%. The decline is exacerbated when a price inflation of 0.7% is factored in. Comparable stores’ sales in the business were 3.4% lower.

Woolworths is also facing pressure in Australia. Its Australian department store chain, David Jones, reported a 3.8% decline in total sales.

Since Woolworths completed its ambitious R22 billion acquisition of David Jones and sister retailer Country Road Group (CRG) in 2014, with the intention of turning it into a substantial retailer in the southern hemisphere, both businesses have been in turnaround mode.

Woolworths sunk about A$284 million (R2.9 billion) between 2016 and 2017 to reposition David Jones and CRG by mainly replacing merchandise and financial systems that better track stock availability.

Woolworths’ push of its homegrown private label brands including Studio W and RE into David Jones stores flopped as the quality and fashionability of merchandise didn’t resonate with Australian shoppers.

The star performer was Woolworths Food sales.