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Woolworths trims dividend as Australasian operation weighs on results

Woolworths trims dividend as Australasian operation weighs on results
Georgina Crouth
By Georgina Crouth
4 Sep 2024
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The retailer’s Roy Bagattini called Country Road’s performance their biggest disappointment.

Significant macroeconomic pressure, particularly from Australia, below expectation sales growth, and a number of own goals have bruised Woolworths’ annual results, forcing the retailer to cut its final dividend by almost a quarter.

Woolworths blamed its poor performance in Australia on sustained interest rate increases and higher costs of living, which are denting consumer confidence, footfall and spending. 

In South Africa, its business operations were further disrupted by congestion at the ports for most of the period, taxi strikes and avian flu in the first half. Despite these difficulties, Woolworths’ South African business saw turnover and concession sales increasing above inflation by 6.7%, while operating profit grew by 5.9%. 

Woolworths’ on-demand delivery platform, Dash, grew by 71.2%.

The Food business was buoyant, with overall turnover and concession sales growing by 9% on a comparable 52-week basis. Online sales also experienced significant growth, increasing by 52.8% and contributing 5.5% of South African sales.

Boost from Absolute Pets


CEO Roy Bagattini said the business benefited in the last quarter from the acquisition of Absolute Pets, “a really great business and an acquisition which leapfrogs us to being the pet care destination of choice in South Africa. 

“Very importantly, the Foods business has maintained its industry leading return on capital. So overall, an exceptional result.”

The retailer bought a 93.5% stake in Absolute Pets in October last year from Sanlam Private Equity and Absolute Pets management, which was approved by the Competition Commission earlier this year.

But the Fashion, Beauty, and Home business spluttered due to the weak macro environment, product availability issues, and increased competition from international online retailers. 

“We continued to make really good progress on a number of our strategic and turnaround initiatives, but to be frank, sales growth was behind expectations.”

A number of factors were to blame for this, Bagattini said, extending  beyond the ongoing pressure on discretionary spend. These include the impact of shipping delays and port congestion, the late onset of winter and international online retailers. 

He said “certain international online retailers” (Shein and Temu) were having a significant impact on the South African market, not helped by Woolworths’ own-goals in the area of poor product availability, which they were addressing.

The Financial Services closing book value remained relatively stable at R15.4 billion, with an impairment rate that improved by 7%.

Reported profit after tax for the period was R223-million, which is up by 69.3% on the previous year. 

Turnover decline


Turnover and concession sales for the 52 weeks declined by 0.4%, with sales growth in the second half of the year declining even further, due to the late onset of winter. 

The group’s profits were down during the reporting period, for the 53-week period ending 30 June 2024. This is not directly comparable to the profits of the previous year due to the inclusion of the David Jones contribution for nine months (up to March 2023). 

Adjusted earnings before interest and tax (a measure of profitability) for continuing operations decreased by 14.1% compared to the previous year, reaching R5.8-billion. 

On a 52-week basis, turnover and concession sales increased by 4.3%. 

Online sales were also strongly up, rising by 13.3% and contributing 9.2% to overall group sales.

However, when considering the total group, including the contribution of David Jones for the previous year and the additional week in the current year, turnover and concession sales declined by 16.4%, which it attributed to the absence of David Jones’ contribution in the current period.

Australasian slump


Woolworths’ Achilles heel was its Australasian operations: Retail trading conditions in Australia and New Zealand deteriorated significantly in the second half of the year, with declining consumer sentiment and household savings at near-record lows. Country Road (CR) sales were down by 6.8%.

Online CR sales also contributed significantly, accounting for 27.6% of total sales, but higher promotional activity, a weaker Australian dollar, and investment in new distribution channels eroded profitability.

Bagattini said performance of the Country Road Group was, without question, the most disappointing outcome for them this year, because trading conditions proved significantly tougher than expected. Higher living costs and interest rates had a pronounced impact on consumer confidence and spending, resulting in a double digit decline in footfall, which put a lot of pressure on sales.

The overall outlook for the Australian and New Zealand business remains challenging, it said, given the ongoing economic headwinds.

In Australia, the macro recovery is also likely to take longer than expected. 

Woolworths said it was optimistic about the prospects for South Africa, after the  formation of the Government of National Unity and the suspension of rolling blackouts. But while inflation was easing, the trading environment was expected to remain constrained.

The group declared a final dividend of 117.5c/share, which is 23.9% lower than the prior period’s final dividend of 154.5 cents.

Woolworths’ share price was down almost 2.5% on closing. DM

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