Woolworths issues stark warning as sales dip by almost 20%

Even Woolworths customers are smarting from the weak economy. 

The retailer said today that soaring living costs and elevated interest rates have eroded consumer confidence, which has led to a sharp decline in discretionary spending. As a result, the upmarket retailer expects its full-year earnings to be down by almost 20% for the year.

Despite a 6.2% growth in group turnover and concession sales, the retailer’s overall performance was dented by the sale of David Jones and an extra trading week in the current financial year.

The results are based on a 53-week year, which happens roughly every five or six years.

Since a normal year has 52 weeks and one day, these extra days accumulate over time until there’s an extra week in a particular year. As such, Woolworths’ results reflect a 53-week year, ending 30 June 2024, not 23 June. In a comparable 52-week period (ended 23 June 2024), sales grew by 4.3%, and in H2 by 3.2%. Online sales grew by 13.3% and contributed 9.2% to group sales for the year.

At the end of March this year, Woolworths could finally close the book on its troubled investment in David Jones. The Australian department store chain had been sold to Anchorage Capital Partners for a significantly reduced price, helping Woolworths offload a heavy debt burden. The group ended Q1 with a healthy balance sheet and a net cash position in Australia of A$351.4-million, with David Jones reported as a discontinued operation in the group’s interim results. 

While the Food business delivered strong growth, the Fashion, Beauty, and Home (FBH) divisions were all battling. Despite progress on strategic initiatives, the business was affected by weak economic conditions, product shortages, and intensified competition from international online retailers. 

Sales growth was limited to 1.4% for the period, with a decline of 0.4% on a comparable 52-week basis.

The FBH division focused on improving product quality by reducing promotions and clearances, leading to higher prices. However, sales dropped 2.9% in the second half due to lower prices and the delayed winter season. Online sales increased by 30.4%, contributing 5.6% to overall sales.

Woolworths Food outperformed the market, with sales surging by 11.2%, with comparable store sales up 6.9% despite disruptions from taxi strikes and avian flu. Despite an average food inflation rate of 7.9%, Woolworths Food grew by 9.6% in the second half of the year — a strong performance that was bolstered by the acquisition of Absolute Pets.

The business also capitalised on the growing popularity of online shopping, with online sales surging by 52.8% thanks to the success of the Woolies Dash service.

Country Road Group, Woolworths’ Australian and New Zealand operations, experienced a 6.8% decline in sales for the year and by 8% in a comparable 52-week period, due to deteriorating retail conditions, increased import costs relating to a weaker Australian dollar and consumer sentiment at near-record lows.

Woolworths Financial Services was down by 2.9% year-on-year. However, excluding a partial sale of its legal book, the portfolio would have grown by 1.8%. The financial services division also improved its impairment rate from 7.3% to 7%, maintaining a strong industry position.

Due to market conditions and increased investment, Woolworths anticipates a substantial drop in earnings per share by between 15% and 20% compared with the previous year.

Woolworths is set to release its full-year results on 4 September 2024. DM