Another global SA company falters: Woolworths share price plunges

EDINBURGH — South African corporates are struggling to prop up their businesses through global operations as economic conditions at home have deteriorated. Woolworths is the latest South African entity to reveal that all is not well, with its David Jones business faltering amid tough competition in Australia’s retail sector. South Africa grown retailer Steinhoff, which expanded quickly by snapping up businesses across the globe, is on the brink of collapse after irregularities were identified in its books late last year, while Aspen is also showing signs of its aggressive acquisition strategy getting the better of it. South African companies have been hunting beyond Africa for growth opportunities. The domestic economy has shrunk under President Jacob Zuma and business and investment sentiment have turned negative as the country has been rocked by one corruption scandal after the next. However, in a glimmer of hope that the country may be close to a turning point, the authorities have started to make a move on Zuma’s associates in Gupta-linked entities and at global consulting firm McKinsey. These developments have come as Cyril Ramaphosa, seen as more level-headed than Zuma and pro-business, takes the reins from Zuma as leader of the ANC. – Jackie Cameron

By Janice Kew

(Bloomberg) — Woolworths Holdings Ltd. plunged the most in almost two years after South Africa’s largest food and clothing retailer said profit will be hurt by a revaluation of its David Jones business in Australia.

Earnings per share are expected to be more than 20 percent lower, in part because of the Australian review, the Cape Town-based company said in a statement on Monday. Revenue increased by 2.5 percent in the 26-week period ending Dec. 24, compared with 6.7 percent the previous year. Sales at David Jones fell, as did revenue in the South African fashion, beauty and home division.

David Jones Ltd. branded shopping bags hang near a sales counter inside the company’s Bourke Street store in Melbourne, Australia. Photographer: Carla Gottgens/Bloomberg

The weak performance at David Jones was “related to changes in styling and the increased introduction of private-label Woolworths brands,” Alec Abraham, an analyst at Johannesburg-based Sasfin Securities Pty Ltd., said by phone. “In South Africa, the fashion performance is unsatisfactory.”

The stock slumped as much as 9 percent, the most since February 2016, and traded 5.1 percent lower at 60.09 rand as of 3:23 p.m. in Johannesburg. The stock has fallen 17 percent in the past 12 months, compared with a 5 percent gain on the FTSE/JSE Africa General Retailers Index.

Woolworths’s overall performance shows that its focus on wealthier South African customers hasn’t made it immune from an environment of weak consumer confidence in the country, to some extent because of unemployment of almost 28 percent. South Africa’s new ruling-party leader, Cyril Ramaphosa, said on Saturday that economic revival was one of his main priorities, and that he sees higher growth in 2018 than the 1.2 percent forecast by the central bank.

Headline earnings per share are expected to have declined between 12.6 percent and 17.5 percent over the relevant period. Earnings per share will also be down as a result of the inclusion in the prior period of profit from the disposal of a property in Sydney.

David Jones assets were valued at 24.2 billion rand ($2 billion) as of June 25, Woolworths said in August. The South African company bought the Australian department store chain for about $2 billion in 2014.