Woolworths hikes dividend by 250% as financial position improves

Following crippling lockdown restrictions in Australia the first half of its financial year, Woolworths saw a strong recovery in sales in its businesses Down Under in the past few months.

Its embattled South African Woolworths clothing business is also showing signs of life, with sales gaining momentum.

For the year to end-June, Woolworths’ total turnover grew by 1.4% to R87 billion, but business picked up in the second half with sales climbing 4.9% as lockdown restrictions eased in Australia.

Online sales – which grew by 16% over the past year – now contribute 12% to its total sales.

Its headline earnings per share rose by almost 7% over the past year, and the group is paying a total dividend of 229.5c per share – almost 250% more than its dividend last year of 66c.

After struggling with a crippling debt burden following its R21.4 billion takeover of David Jones in 2014, Woolworths says it ended the year with a robust balance sheet and a net cash position of R229 million. This was partly thanks to a R1 billion dividend paid out by David Jones, which was used to help settle its debt. David Jones will pay out another A$50 million (R850 million) to Woolworths following year-end.

Its Woolworths fashion, beauty and home business in South Africa, which has been underperforming for many years, saw its sales grow by 6.5% in the last six months.

The company saw an “improved product resonance”, market share gains in key products and a stronger performance from the rest of Africa. Sales for the full year grew by 5.4%, despite a decline of 4.5% in trading space. Its gross profit margin increased by 210bps to almost 48%.

The Woolworths Food business grew turnover in the second half of the year by 4.6%, and for the full year by 4.2%. Increasing competition from other retailers and the return of eating out at restaurants following lockdowns hit its sales.

Woolworths increased food prices by 3.5% – while underlying product inflation was 3.9%, reflecting continued “price investment”. Its gross profit margin shrank by 50bps to 24%.

Full-year profit from the food business declined by almost 4% to R2.9 billion.

Online food sales increased by 45%, contributing 3% of total South African sales.

The Woolworths Financial Services book grew by almost 7% over the past year, with the impairment rate for bad debts falling from 5.4% to 4.7%.

In the first half of the year, lockdowns in Australia and New Zealand resulted in the closure of stores representing more than 70% of its sales for an extended period.

For the full year, sales at David Jones declined by 2.6% – but in the last six months sales rose by 4.3%. Online sales increased by 29% and contributed 23% of total sales.

Country Road Group grew sales by 9% despite a further 8% reduction in trading space. Woolworths says this was thanks to a strong performance from the Country Road, Trenery and Politix brands, following the successful launch of new ranges. Online sales increased by 5% and contributed 32% to total sales for the year.

In its forecast for the current financial year, Woolworths warns of a volatile global economy, with rising inflation and interest rates.

“Whilst this impact on Australian consumer spend should be somewhat mitigated  by strong household balance sheets and high employment, South African consumption faces high unemployment  and severe energy shortages.”

Global supply chain uncertainties and elevated freight costs are pushing up prices and resulting in a shortage of raw materials.

“Notwithstanding this backdrop, the current momentum of our apparel businesses is expected to continue, and our food business is expected to deliver a solid underlying performance whilst investing in key initiatives,” says Woolworths.

Its share price jumped by more than 4% in opening trading on Wednesday. – news24.com