Woolworths Sees Further Gains From David Jones Turnaround

Updated on
  • South African food sales growth help lift annual profit
  • Woolworths plans to open stand-alone food stores in Australia

Woolworths Holdings Ltd., South Africa’s biggest retailer by market value, said rising profit at newly acquired Australian chain David Jones Ltd. and market-share gains are helping to counter the pressure on consumers in its home market.

David Jones’ profit margin was 7.6 percent at the end of June, compared with about 3 percent at the time of its $2 billion purchase last year, Chief Executive Officer Ian Moir said in a presentation in Cape Town on Thursday. Woolworths plans to increase the figure to more than 10 percent by fiscal 2018, he said.

South African unemployment of 25 percent, power cuts and rising fuel prices are putting pressure on shoppers to cut down on major purchases in Woolworths’ home market. The country’s economic climate is “going to be tougher than the year we’ve had,” Moir said.

Trading for the first eight weeks of the new financial year has been “strong in both South Africa and Australia,” the CEO said. “The upper-income consumer in both regions should remain relatively resilient,” he said. While lower commodity prices will continue to curb growth in the South African and Australian economies, Woolworths “will gain market share.”

Beating Estimates

Net income at the seller of organic foods and international clothing brands such as Country Road rose 24 percent to 3.75 billion rand ($287 million) in the year through June 28, the Cape Town-based company said in a statement on Thursday. That compares with the 3.65 billion rand estimate of six analysts surveyed by Bloomberg. Sales gained 42 percent to 56.5 billion rand, including the David Jones purchase.

Food sales climbed 14 percent, while clothing revenue increased 9.6 percent. Strong second-half trading at David Jones lifted that unit’s full-year sales by 6.4 percent.

Woolworths shares, which have climbed 24 percent this year, slid 2.3 percent to 96.60 rand as of 12:17 p.m. in Johannesburg. The stock is still the best performing major retailer on the FTSE/JSE Africa General Retailers Index. The company is valued at 92 billion rand.

Woolworths has changed the David Jones clothes range, increased staff numbers and focused on ensuring employees have better knowledge of the products, Moir said. While some David Jones stores may be closed and formats of existing shops changed further, Woolworths also plans to open more outlets.

Boosting Employment

“Our aim is to open different formats in different places including New Zealand, driving better relationships with customers and employing many more people,” Moir said.

Woolworths plans to improve the David Jones food offering by expanding stores first and eventually opening stand-alone food outlets.

“There is a big gap in the Australian market for fresh food,” Moir said. “Food has become the new fashion with high expectations from customers that want to engage and interact. At David Jones the food offering is a bit tired.”

The company plans capital spending of 1 billion rand at David Jones in the current fiscal year, 2 billion rand at Woolworths and just over 500 million rand at Country Road.