‘Tough year ahead for retail sector’

AFTER experiencing an underwhelming festive period, the South African retail sector’s outlook for 2017 remains a sombre one as low consumer confidence is expected to weigh in on sales volume this year.

One of the country’s retail giants, Woolworths, said yesterday that it expected its first-half profits to decline by between 2.5 percent and 7.5 percent after the group reported just 6.7 percent rise in sales for the first 26 weeks of the 2017 financial year.

Derek Engelbrecht, a retail and consumer products leader at EY, said he anticipated a tough year for retailers as the macroeconomic conditions were not favouring consumer confidence.

“Where companies were astute enough to grow top line revenues, (this) will no doubt be at the expense of profitability in the short-term and that seems to be what the Woolworths trading statement also implies,” Engelbrecht said.

Woolworths said it expected its headline earnings per share to decrease by between 2.5 percent and 7.7 percent to between 234.5 to 247.2 cents per share for the period. However, its earning per share was expected to rise in the range of 30 percent to 40 percent to between 329.8 to 355.2 cents per share.

The company attributed this to the profit it accrued from the disposal by David Jones of its Market Street property in Sydney.

The group’s annualised impairments went up to 5.9 percent from 4.8 percent in the comparative period.

Engelbrecht said the low consumer confidence had the biggest impact on the durable part of the retail sector.

“Consumers have no choice but to buy food, but a retailer like Woolworths – which is considered to be an upper-to-premium brand retailer – would lose some consumers as they trade down.”

Its clothing and foods departments both recorded an increase in sales in the period under review.

The company’s clothing and general merchandise arm sales went up by 3.5 percent while its food department sales shot up by 9.5 percent.

Its financial services debtor’s book reflected year-onyear growth of 2.3 percent at the end of December.

Manisha Morar, an analyst at ETM Analytics, said while the retail sector had shown resilience in 2015 and 2016 that resilience had begun to wane.

“The outlook for the sector this year is not optimistic, the main reason being the credit cycle unwinding and we have seen low credit growth translate into low consumer confidence,” Morar said.

The group said its sales department stores David Jones and Country Road were adversely impacted by the timing of Boxing Day and the Dicks Smith electronics concession falling through. David Jones sales growth went down by 2.7 percent while Country Road was down 1.1 percent.