Woolworths ups final dividend on stronger H2 performance

JSE-listed food, clothing and homeware retailer Woolworths has declared a final dividend of 149 cents, a 125.8% increase on that declared in the prior year, boosted by an improved group trading performance in the second half.

The up-market retailer on Wednesday further noted a modest improvement in group turnover and concession sales of 1.4% for its full-year to 26 June 2022, increasing to R87 billion.

Supporting this was the 16.4% surge in online sales which contributed 12.4% to the group’s total turnover and concession sales.

Headline earnings per share (Heps) grew by 6.5% to 398.9 cents this period, up from 398.9 cents in the prior period.

The easing of lockdown restrictions across its operations during the period contributed significantly to creating a better trading environment in the second half, helping the group focus on executing its strategic objectives, Woolworths said.

The market seemed pleased with the group’s increased dividend, with the share price of Woolworths up over 5%  to R56.22 in morning trade on Wednesday.

David Jones recovery

Despite registering a 2.6% decline in turnover and concession sales for the full year, the group’s Australian clothing business David Jones is showing signs of recovery, recoding growth in the second half of its 2022 financial year. This follows extensive government-enforced Covid-19 related lockdown restrictions battered the already struggling business in the first half and prior financial year.

A stronger second half saw the brand growing turnover and concession sales 4.3% between January and June 2022 – growth the group says was aided by the easing of lockdown restrictions.

Continuing the group’s efforts to aid in the business’s recovery, Woolworths has, as part of its “space optimisation” strategy, reduced David Jones trading space by a further 2.6% this period.

“For the full year, adjusted operating profit declined by 0.6% on the prior year to A$83.7 million, returning an operating profit margin of 4.1%, compared to 4.0% in the prior year.”

“This was achieved despite Covid-19-related government support and rent concessions in the prior year base,” Woolworths said.

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Operational review

A reduction of trading space by 4.5% of its fashion, beauty and homeware (FBH) during the period has, according to the retailer, supported a double-digit increase in trading densities for the segment.

The FBH business has seen noticeable turnover improvement with turnover and concession sales rising by 6.5%, this as the move back to the office intensifies in South Africa.

“Adjusted operating profit increased by 48.7% to R1 610 million, resulting in an operating margin of 11.9% for the year, compared to 8.4% in the prior year.”

Food still modest

The food business has maintained growth this period – even if muted in comparison to other grocery retailers – reporting a 4.6% rise in turnover and concession sales in the second half of the year .

Woolworths says the growth of the food business this period needs to be viewed in the context of the return to out-of-home consumption – an increasingly competitive environment – as well as the impact of the high base it saw in prior years.

Like its competitors, the group has also reported managing price increases, keeping product inflation across its key categories low to shield the consumer from the rising cost of living.

“Price movement averaged 3.5% for the full year, with underlying product inflation at 3.9%, reflecting continued price investment.”

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Country Road

For its international operations, Woolworths says stronger consumer demand as well as the group’s focus on trade saw a “healthy rebound” in sales in the second half of the year.

Unlike David Jones, the Country Road business managed to grow its sales by 9% in the second half, resulting in a full-year sales growth of 3.1%.

Woolworths says this improvement was driven mainly by a strong performance from the Country Road, Trenery and Politix brands which launched new ranges during the period.

However, the need to implement extended clearance sales as well as government’s decision to extend lockdowns and higher freight costs resulting from continuing global supply chain constraints has seen Country Road’s gross profit margin declining by 130bps to 59.5%.