Woolworths Earnings Climb 21% on Resilience of Higher Income

Woolworths Holdings Ltd., a South African food and clothing retailer, posted a 21 percent increase in first-half earnings helped by demand from higher-income consumers.

Earnings per share excluding one-time items advanced to 1.23 billion rand ($139 million), or 1.64 rand a share, in the six months through Dec. 23 from 1.01 billion rand, or 1.36 rand, a year earlier, the Cape Town-based company said in a statement today. Revenue rose 18 percent to 16.8 billion rand. Sales at stores open for more than a year climbed 9.4 percent.

“These are excellent results, way ahead of the market,” said Evan Walker, a portfolio manager at 36One Asset Management. He helps oversee assets of about 8 billion rand. “Second-half prospects are ahead. They are well positioned on all ranges, be it food or clothing. The upper middle class is immune to the economic slowdown.”

Retail-sales growth in Africa’s biggest economy, where one in four people is unemployed, slowed to 2.3 percent in December as quickening inflation curbed consumer demand. The economy will expand 2.6 percent this year, near the estimated growth of 2.5 percent last year, which would be the lowest since a 2009 recession, the central bank said Jan. 24.

“Economic conditions in South Africa will remain constrained, especially in the lower- and middle-income segments of the market where consumer debt levels remain under pressure,” the company said in a statement today. “The upper-income segment in which we operate continues to show some resilience. Trading for the first six weeks of the second half of the financial year has been positive, and we expect sales growth to be broadly in line with the first half.”

Witchery Group

Woolworths will add more products in food and clothing in South Africa and plans to introduce the fashion retail brand the Witchery Group, acquired in August, within a year, Chief Executive Officer Ian Moir said today in an interview.

The company’s expansion plans for Africa are on target to reach 100 stores from a current 61, said Moir. Woolworths is also negotiating to buy back the franchise license from the holder for Botswana, Namibia and Swaziland.

“We just want to operate a different business model,” said Moir in Johannesburg. “We don’t believe in the franchise model.”

Woolworths has the biggest weighting in the FTSE/JSE Africa General Retailers Index at 27 percent. The stock slipped as much as 5.3 percent and traded 2.6 percent lower at 65.40 rand at the 5 p.m. close in Johannesburg, extending its decline this year to 7.9 percent.