Woolworths Profit Rises as Wealthier Customers Keep Spending

Updated on
  • South African food, clothing retailer earnings beat estimates
  • Trading in domestic market, Australia continues to be tough

Woolworths Holdings Ltd. reported full-year profit that beat analyst estimates as the South African food and clothing retailer that’s expanded in Australia benefited from a more “resilient” higher-earning customer base.

Diluted headline earnings per share, which exclude one-time items, rose 8.9 percent to 4.53 rand in the year ending June 26, the Cape Town-based company said in a statement on Thursday. That compared with the 4.45-rand average estimate of six analysts. Sales rose 16 percent to 72.1 billion rand ($5 billion), with Woolworths’s food offering outperforming clothing and general merchandise.

Woolworths follows Shoprite Holdings Ltd. as South African retailers reporting increased sales and profit this week, even as slowing economic growth weakens consumer confidence in their home market. Woolworths also benefited from increased revenue in Australia, where it acquired Sydney-based department-store operator David Jones for $2 billion in 2014.

The shares rose 3 percent to 88.03 rand by 10:28 a.m. in Johannesburg, on track for their biggest gain in a month. That pared declines for the year to 12 percent, valuing the company at 92 billion rand.

The mid-to-higher income customer is “being more resilient,” Chief Executive Ian Moir said in a presentation. Food sales performed “relatively strongly and we are still taking market share,” he said. The company plans to invest as much as A$100 million ($76 million) in David Jones’s food offering over the next three years and sees it becoming profitable in 2019, Moir said.

“We’ve had a great run in foods and I feel now is the time to really put some of that money back and invest in price,” the CEO said. “We can still take further market share, but we can only do if we maintain great value, particularly in fresh and particularly in meat.”

Clothing sales suffered due to a “horrible, non-existent winter,” the CEO said, yet we’re performing better now the southern hemisphere has entered the spring season.

The retailer is also seeing increased competition in both South Africa and Australia with the arrival of northern hemisphere rivals, the company said. Woolworths competes mainly with Shoprite and Pick n Pay Stores Ltd. in South Africa.

Woolworths raised the total dividend by 27 percent to 3.13 rand per share.