Woolworths said for the 26 weeks ended December 25, 2022, earnings were up 75% as shoppers returned to brick-and-mortar stores, but its operations in South Africa were hamstrung by load shedding.
The financial impact of load shedding on the group's operating profit was R15 million a month, amounting to R90m for the reported period.
Headline earnings per share rose to 294.5 cents from 168.2 cents the previous year.
The retailer declared an interim gross cash dividend per ordinary share of 158.5c per share, based on a payout ratio of 70% of headline earnings of the combined Woolworths South Africa business segments (FBH, Food and WFS) as well as Country Road Group.
The dividend increased by 96.9% from the prior period's 80.5 cents.
Group turnover and concession sales increased by 18.5% to R49.9 billion, while profit before tax increased by 63.3% to R3.7bn.
“The return of customers to physical stores, particularly in Australia, resulted in a substantial increase in brick-and-mortar sales, with the contribution of online sales moderating to 10.9% of total turnover and concession sales, compared to 13.7% for the prior period,” the group said.
In South Africa, Woolworths has joined other major retailers in counting the costs of load shedding on its business. It said the country was facing a devastating energy crisis, which continues to have a pronounced impact on its economy, as well as business and consumer confidence.
Retailer Pick n Pay said it had spent nearly R350 million year-on-year on diesel to run generators in the first 10 months of its year, while Shoprite said for the six months ended January 1, 2023, to operate generators across its South African supermarkets’ store-base to trade uninterrupted during load shedding Stages 5 and 6, had amounted to R560m for the period.
Woolworths said the majority of this incurred in its predominantly fresh food business, as a result of increased waste and diesel costs in both its supply chain and stores.
“Given the erratic and unpredictable nature of load shedding, we are focused on developing a longer-term business solution to sustainably mitigate both upstream and downstream impacts of this challenge. This includes the impacts on our suppliers, and particularly those where the costs required to manage the breakdown in infrastructure have become prohibitive,” the retailer said.
Woolworths said while it was focused on minimising both the operational and financial impacts of load shedding, its primary objective was to protect the quality and integrity of its cold chain, and the trust customers place in its brand.
“We have made significant past investments in our energy supply capabilities, with 99% of our stores and all our distribution centres already equipped with generator capacity.
“Furthermore, the majority of our suppliers are exclusive to our Food business, with these partnerships, in many instances, spanning decades.
“This places us in a favourable position to build a holistic, integrated, and fully resilient response plan from here,” the group said.
Woolworths said its Fashion Beauty Home turnaround strategy continued to gain traction.
“Turnover and concession sales grew by 11.2%, and by 11.0% on a comparable store basis, and strengthened to 12.0% in the last six weeks of the period. The price movement of 10.8% remained positively impacted by the ongoing focus on full-price sales and the continued reduction in markdowns. Trading space was further reduced by 2.2% over the prior period. Online sales grew by 4.5% and contributed 4.2% of South African sales,” it said.
The Food business grew turnover and concession sales by 7.6% and by 5.4% on a comparable store basis, with sales growth accelerating to 8.6% in the last six weeks of the period.
“This is notwithstanding the considerable disruption caused by load shedding, which continues to have a pronounced impact in terms of foregone sales and increased costs,” the group said.
The Woolworths Financial Services book reflects a year-on-year increase of 17.2% to the end of December 2022, driven by consumer spending, as well as new accounts and credit card advances.
Woolworths said its businesses in Australia and New Zealand continued their positive momentum, notwithstanding the increased inflationary pressures faced by consumers during the period.
“Country Road Group sales grew by 25.5% and by 26.6% in comparable stores, underpinned by strong performances from the Country Road, Politix, and Witchery brands in particular.
The group said the successful turnaround of David Jones delivered a notable improvement in the business' underlying operational and financial health.
“For the period, turnover and concession sales increased by 31.8% and by 27.6 on a comparable store basis, with our flagship and CBD stores performing ahead of expectations,” Woolworths said.
Looking ahead, the group said the trading environment over the second half of the financial year was expected to prove more challenging as it continued to face numerous headwinds through higher inflation and interest rates, which were placing pressure on both consumer demand and costs.
“In South Africa, an imminent resolution to the debilitating power crisis and stimulus for economic growth appears remote. These factors, coupled with a higher comparative base effect, are likely to result in slower profit growth (from continued operations) in the current half, relative to the first half,” it said.
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