Woolies warns of slump in headline earnings and cash flow decline
Executives and board to forgo up to 30% of fees and salaries over the next three months
ONE OF THE country’s top retailers, Woolworths, yesterday warned that its profit could fall as much as 20 percent year-on-year as the coronavirus continues to wreak havoc on the country’s business operations.
Woolworths said it projected that its headline earnings would slump and its cash flow would decline during the second half of the year. The group said it expected headline earnings a share for the 52 weeks to June 28 to be lower than the R33.04 reported a year earlier.
It said the temporary closure of non-food stores in line with the lockdown regulations, declining foot traffic and consequent loss of trade were likely to have a substantial impact on its operations in the second half of the year. However, the group said it had taken steps to mitigate the impact by, among other things, approaching landlords to amend lease agreements, driving revenue through online channels and reducing costs.
“Capital expenditure has been cut, with only critical projects moving forward. We have engaged with our suppliers to reduce apparel product intake and to extend payment terms,” Woolworths said. “We are also meeting with landlords to explore alternative arrangements to current lease commitments through the relevant period.”
Woolworths said it recognised the challenging circumstances and announced that the board, group chief executives and members of the senior executive team had decided to forego up to 30 percent of their fees and salaries over the next three months.
“The savings arising from this will be used to provide additional financial support to staff who find themselves in extreme hardship as a result of the current crisis,” said the group.
Woolworth said its fashion, beauty and home (FBH) stores had been closed since the introduction of the national lockdown on March 27.
The company said the essential workforce would receive an additional appreciation payment for the duration of the lockdown. It said panic buying ahead of the lockdown contributed to sales in the four weeks to the end of March rising 27.6 percent on the prior comparable period compared to 7.5 percent in the preceding nine weeks of the second half.
“The period immediately prior to the lockdown saw unprecedented demand for specific products that consumers considered essential. This demand has begun to moderate, as shopping patterns are reset and as confidence in the food supply chain grows,” said Woolworths, adding that significant focus was being placed on the online business in order to contend with significantly increased demand.
The group said the FBH business was affected by the shift of customer spend to essential products.
It said the compulsory closure of FBH stores would have a material impact on the segment’s results for the second half of the financial year.
Woolworths shares rose 7.94 percent to close at R28.96 yesterday.
WOOLWORTHS yesterday joined a growing list of companies that have opted for salary cuts to contend with the fallout of the coronavirus on its business.
Woolworths said its group chief executive, Roy Bagattini, other senior executives and the board would forgo up to 30 percent of their fees and salaries over the next three months to cushion the impact of Covid-19 on its employees.
“The savings arising from this will be used to provide additional financial support to staff who find themselves in extreme hardship as a result of the current crisis,” said Woolworths.
Last week, Arcelormittal South Africa (Amsa), Africa’s biggest steelmaker, said it planned to curtail expenditure of nonessential goods and services, introduce short time and cut salaries by as much as 45 percent at the end of this month.
In a letter to creditors on behalf of its employees, Amsa said the salary cuts implemented at the beginning of the month had become unavoidable.
Amsa said they would last no less than three months. “We, therefore request that the bearer of this letter, who is an employee of ArcelorMittal, be given favourable consideration for support measures through your institution in consideration of the impact that the Covid-19 virus is having on all South Africans,” said Amsa.
The ailing steel producer also said that it had issued force majeure notices to its customers and suppliers “where appropriate”.
“While the need for such action is clear and supported, it will result in further challenges over and above the effects of an already struggling economy and economic impact of Covid-19 globally and locally,” it said.
“The early signs of further weakening in local demand were apparent even before the first positive case of Covid19 in South Africa.”
Troubled technology group EOH Holdings also announced it would implement short time, a four-day week, resulting in a 20 percent cut in salaries.
Labour analyst Michael Bagraim said the 21-day lockdown was devastating for big and small businesses.
“The coronavirus has resulted in a tragedy. A lot of companies are liquidating, and it is going to take many years for businesses to get back to where they were before the lockdown.
“Big businesses are better off. They can access funds, have overdraft facilities, and many have insurances. However, small businesses will likely collapse, as they do not have extra funding.”