Load shedding is slashing Woolies' profits
R15 million a month
Woolworths is cautious about its outlook for the second half of the year, saying there could be slower profit growth from its continuing operations.
Nick Wilson - Food and fashion group Woolworths has increased its first-half earnings by more than half and nearly doubled its interim shareholder payout, with a sharp rebound in Australia helping to offset load shedding in SA, which is costing it R15 million per month in lost profits.While load shedding's total impact on adjusted operating profit for the period came in at about R90 million, strong results from Australia saw a surge in sales off a low base due to Covid-19 lockdowns in the previous reporting period. This helped lift headline earnings 70% to R2.74 billion for its six months to 25 December.
Headline earnings per share rose by just more than three quarters, while the company upped its dividend by 96.9% to 158.5c per share, representing about a R1.6 billion payout.
The JSE-listed retailer was, however, cautious about its outlook for its second half, saying there could be slower profit growth from its continuing operations as it expected the trading environment to "prove more challenging".
It said higher inflation and interest rates were anticipated to bring more pressure to bear on consumer demand and costs, while in SA "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 lower profit growth [from continued operations] in the current half, relative to the first half."
Turnaround strategy
Woolworths also said that its turnaround strategy in its fashion, beauty and home division continued to gain traction, reporting that turnover and concession sales rose 11.2%, and by 11% on a comparable store basis. In the last six weeks of the period, they grew 12%.
It was also able to pass on selling price increases of 10.8%, adding this was positively affected by an "ongoing focus on full-price sales and the continued reduction in markdowns".
"This is not notwithstanding the considerable disruption caused by load shedding, which continues to have a pronounced impact in terms of foregone sales and increased costs."
Erratic electricity supply
Woolworths said the "erratic and unpredictable nature" of load shedding meant the group was now focusing on developing a "longer-term business solution" to "mitigate both upstream and downstream impacts to 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 group said its "significant past investments" in its energy supply capabilities proved beneficial, with 99% of its stores and all its distribution centres already equipped with generator capacity. – Fin24/Bloomberg