Woolworths maintains divi – H1 earnings slide 4.3%

From Fin24

Cape Town – Woolworths [JSE:WHL] said it will maintain its dividend payout for the 26 weeks ended 25 December, as it announced a 4.3% drop in headline earnings per share on Thursday.

While its operating profit declined by 3.2% to R3.7bn, its earnings per share increased by 36% due to the R1.76bn profit it received on the disposal by David Jones of its Market Street property in Sydney.

Customers enter the Woolworths V&A Waterfront store, operated by Woolworths Holdings Ltd., in Cape Town., South Africa. Photographer: Halden Krog/Bloomberg

Its clothing and general merchandise saw its sales grow by 3.5%, while its food division saw better growth at 9.5%. David Jones sales grew by 4%, while Country Road sales declined by 0.9%.

Gross margins in the above declined due to promotional activity that saw the retailers offering lower prices. Food costs were also higher due to the drought.

It declared an interim cash dividend of 133 cents per share. “The dividend has been declared from income reserves and therefore does not constitute a distribution of contributed tax capital,” Woolworths said in a statement on Thursday.

“This is a good set of results in challenging trading conditions, and we have continued to grow the top line in a very competitive pricing environment,” said Woolworths group CEO Ian Moir.

“With the ongoing transformation of David Jones, some encouraging signs in Country Road and the continued success of our food and clothing offer in South Africa, we are confident of maintaining our position as the leading Southern Hemisphere retailer.”

Economic and market conditions are expected to remain difficult into the second half of the financial year, the retailer explained.

“The environment in both markets is expected to continue to be highly promotionally driven,” it said. “We expect growth for the group in the second half in each market to be in line with the growth in the first half.”

Shaun Murison, a senior market analyst at IG, wrote a preview of the results in Finweek on Wednesday. His estimates were similar to the above results and said brokers still saw Woolworths as a buy.

“A Thompson Reuters poll of 14 surveyed analysts (see image below) arrives at a buy consensus for the stock,” he explained. “Analyst estimates for Woolworths currently give a 12-month share price target range of 6 386c to 10 933c, with a median of estimates arriving at an 8 660c valuation for the stock.”

He said the food division remains the standout segment within the Woolworths group, providing a bit more of a defensive hedge in a weak consumer environment than predominantly apparel-focused retailers would.

“Markets will be looking within the upcoming results to see the group’s progress and plans for the David Jones Food rollout in Australia, for which some of the recent property sales cash is being allocated for, as this is seen as a possible catalyst for future growth within the company.

“A key deliverable investors will be looking at would be the company’s progress towards driving synergies and efficiencies across the group, particularly between Woolworths SA (WSA), David Jones and Country Road, the latter of which saw cost of sales in the 2016 financial year at more than double that of WSA (Woolworths SA).” – Fin24


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