Woolworths Holdings Limited has released its trading update for the 20 weeks ended November 12, 2023, showcasing a resilient performance in the face of an increasingly challenging macro-economic backdrop.
The Group’s turnover and concession sales from continuing operations witnessed a commendable increase of 4.7% during the 20 weeks under review. Despite the sustained impact of interest rate increases and higher living costs negatively affecting footfall and discretionary spend, the company showed a robust performance with a 3.9% growth in constant currency terms.
However, the total turnover and concession sales, including the contribution of David Jones in the prior period, saw a significant decline of 22.4% compared to the same period last year. This dip is notably attributed to the high prior-year base, where Group sales experienced a remarkable 13.4% growth, fueled in part by the post-Covid pent-up demand in Australia.
The South African business operations faced disruptions from various external factors, including a Western Cape taxi strike, port congestion, and the impact of Avian flu on key product lines. These challenges, coupled with the high prior-year base, contributed to the overall decrease in total turnover and concession sales.
The economic environment in South Africa remains weak, exacerbated by the ongoing energy crisis, significantly impacting both business and consumer confidence. Despite these challenges, Woolworths remains committed to quality, ongoing investment in its value proposition, and an intensified focus on execution, which has further strengthened customer trust in the brand.
Woolworths’ Food business demonstrated resilience with continued strong underlying growth. Turnover and concession sales grew by 8.4%, with comparable store sales increasing by 7.2%. This growth is especially noteworthy considering the impact of the Avian flu, which affected the availability of key food categories such as eggs and poultry.
Underlying product inflation averaged 9.4%, lower than headline food inflation, reflecting the company’s commitment to providing value to customers. Online sales played a significant role in this success, growing by 46.2% and contributing 5.0% to South African sales, primarily driven by increased penetration through Woolies Dash, the company’s on-demand offering.
While the Fashion, Beauty, and Home business continued to make steady progress against its strategic priorities, it faced challenges in the latter part of the 20-week period. The late arrival of certain summer ranges, attributed to port congestion, impacted sales performance. Turnover and concession sales grew by 1.4%, with comparable store sales in line with the previous year.
Efforts are underway to improve the underlying operational and financial health of the business, with a focus on growing full-price sales, positively impacting price movement by 11.7%. Net trading space reduced slightly by 0.2%, while online sales grew by 23.0%, contributing 5.2% to South African sales.
The Woolworths Financial Services (WFS) book reflected a year-on-year increase of 10.7% to the end of October 2023, driven by growth in new accounts and credit card advances. However, the annualised impairment rate for the four months ended October 31, 2023, increased to 7.5%, compared to 6.2% in the prior period, reflecting the strain on consumers in the current macro-economic environment. It is notable that this rate is decreasing from the peak of the last quarter of the previous financial year.
The Country Road Group faced difficult trading conditions in Australia and New Zealand, further softening throughout the current period. This resulted in a marked decline in retail sales across both store and online channels. Sales for the Country Road Group declined by 8.1%, with comparable stores experiencing a more significant decline of 10.7%.
This decline should be viewed in the context of a particularly high prior-period base, where sales grew by an impressive 36.2%, driven by a strong recovery post the Covid-impacted lockdowns. Despite the challenges, the Country Road brand continued to deliver a market-leading performance across key categories.
Efforts to expand the wholesale and concession offering are underway to support the growth agenda. Trading space increased by 4.3% during the period, while online sales contributed 26.0% to total sales, aligning with the 25.8% contribution in the prior period.
Constant currency information has been provided to illustrate the impact of changes in the Group’s major foreign currency, the Australian dollar. Turnover and concession sales denominated in Australian dollars for the current period have been adjusted by the aggregated monthly average Australian dollar exchange rate for the prior period.
The aggregated monthly average Australian dollar exchange rate is R12.16 for the current period and R11.59 for the prior period. Foreign currency fluctuations of the Group’s rest of Africa operations are not considered material and have therefore not been applied in determining the constant currency growth rate.
The economic environment in South Africa remains challenging, with the ongoing energy crisis taking a toll on business and consumer confidence. However, Woolworths remains confident in its strategies and continues to invest in existing businesses and new growth opportunities, enabled by its strong balance sheet.
Woolworths Holdings Limited’s trading update for the 20 weeks ended November 12, 2023, reflects a company navigating through a challenging economic landscape with resilience. Despite disruptions and declines in certain segments, the company’s commitment to quality, strategic focus, and investments in various business segments positions it to weather the ongoing macro-economic challenges in South Africa and beyond.
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