Load shedding is slashing Woolworths’ profits by R15m a month

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.

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.

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.”

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”.

The Woolworths Financial Services division said its book increased 17.2% to the end of December 2022, “driven by consumer spending, as well as new accounts and credit card advances”.

The group’s blue-chip food business, however, delivered a more subdued performance, with turnover and concession sales increasing by 7.6% and 5.4% on a comparable store basis.  At the same time prices increased 6.8% for the period. Nevertheless, it said that sales growth surged to 8.6% in the last six weeks of the period.

“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.

Breaking down its results, the company said its group turnover and concession sales in its half year increased 18.5% and by 16.3% in constant currency terms.

“Trade during this period is not directly comparable to that of last year due to the impact of government-imposed lockdowns in Australia in the prior period base.

The group, which is in the process of selling its entire shareholding in Australian chain David Jones, said it intended retaining David Jones’ flagship property assets in Bourke Street, Melbourne and that this would be leased back to the new owners. – news24.com