SOUTH AFRICA- Retailer Woolworths has announced it expects a 20% drop in annual earnings in the current financial year compared to the previous year, owing to high inflation that has reduced consumer spending and the sale of its David Jones business.
Through a trading statement, Woolworths revealed it expects results for the financial year ending June 2024 to be incomparable with previous years as it has forgone earnings from David Jones in Q3 2024.
The company also revealed it expects earnings per share to decline by the same percentage points (20%) after factoring in the forgone earnings.
The retailer’s shares fell 7% after it updated the market on the expected drop in annual earnings.
The trading statement also revealed Woolworths has also faced cost challenges caused by high inflation, contributing to the projected decline in annual revenues. Inflation has caused a significant increase in interest rates and decline in disposable income. Many consumers have cut back on their spending.
“At the time of releasing our interim results, our outlook for the second half of the 2024 financial year was expected to remain challenging, considering the continued pressure on consumer disposable income from high interest rates and living costs,” the company said.
The company also admitted the sale of David Jones significantly affected its clothing and apparel wing.
“Trading conditions in the second half to date have, however, proven tougher than expected for our apparel businesses, with further deterioration in footfall and discretionary spending in both geographies (South Africa and Australia),” the statement continued.
Although Woolworth admitted to price control strategies to appeal to customers, the overriding macroeconomic environment has significantly impacted the company’s revenues and sales.
“Whilst costs remain well controlled across the Group, the impact of a weaker top-line environment is resulting in continued negative operational leverage in our apparel businesses,” the company also said.
The retailer’s Country Road Group business based in Australia also struggled with pricing, owing to a weakened Australian dollar and higher fixed costs.
However, the retailer expressed optimism as it expects a natural market correction. Woolworths will release its full annual financial report for the current financial year in September.
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