Woolworths Reports 32% Decline Amidst Increased Living Costs

South African retailer Woolworths expects a decline in full-year headline earnings due to weak sales influenced by higher living costs. The company's fashion and food divisions experienced varied performance, with a significant turnover drop mainly attributed to increased competition and economic challenges in South Africa and Australia.

South African upmarket fashion and food retailer Woolworths announced a projected decline of up to 32% in full-year total headline earnings, largely due to weak sales amid rising living costs. Woolworths disclosed on Wednesday that headline earnings per share (HEPS) for total operations are expected to plummet by 27% to 32% for the 53-week period ending June 30, compared to 514.7 cents from the previous year.

Excluding the previous year’s contribution from the now-sold Australian department store David Jones and adjusting for a comparable 52-week period, HEPS are anticipated to drop by 14% to 19%. Additionally, the retailer plans to record a non-cash goodwill impairment on its Australian men's fashion brand, Politix, which will affect the earnings per share (EPS) but not the HEPS.

Group turnover and concession sales for the entire company decreased by 16.4%. However, the South African Fashion, Beauty, and Home segment saw a turnover growth of 1.4%, and the food business achieved an 11.2% sales increase, further boosted by the acquisition of Absolute Pets in the fourth quarter. On a comparable footing and from ongoing operations, group turnover rose by 6.2%, and by 5.6% on a constant currency basis.

Woolworths' fashion segment faced challenges stemming from a weak macroeconomic environment, poor product availability due to port congestion, and intensifying competition from international online retailers. A delayed onset of cold weather also hindered winter clothing sales.

Fast-fashion online giants Shein and Temu have expanded aggressively, tapping into South Africa's post-pandemic online shopping surge. Shein's appeal lies in its affordable pricing, such as $5 tops and $10 dresses. In Australia and New Zealand, retail trading conditions worsened in the second half, with consumer sentiment near record lows and the ongoing cost of living crisis dampening both footfall and discretionary spending, according to Woolworths.

Consequently, sales at Country Road, their fashion brand, fell by 6.8%.