Woolworths share races on update
February 3, 2004
By Vera von Lieres
Cape Town - Shares in up-market food and clothing chain Woolworths raced 2.7 percent northwards in intraday trade yesterday, following a positive trading update.
The retailer, which is due to report half-year results next week, said earnings and headline earnings for the interim period to December would climb by 10 percent to 30 percent against a year ago.
At that stage, Woolworths delivered a whopping 60 percent rise in headline earnings a share to 33.5c, in line with high market expectations, although management was more subdued about the prospects for the second half.
The group was still benefiting from high price inflation but there were signs of a tapering off.
Yesterday chief executive Simon Susman said trading in the core local operations met expectations but the international franchise stores in the Middle East and Africa had been knocked by the strong rand.
The group's recently established franchise in Saudi Arabia had been shut as it failed to meet viability targets.
In a trading update early last month, the group delivered sales growth of 13.7 percent for the six months to December and the festive season, while comparable store growth was 7.5 percent.
Market watchers latched on to inflation figures at the chain - noticeably high at 9.5 percent for clothing and homeware and 8.6 percent for food, with some attributing a knock in the share price to the surprising numbers, especially compared with other retail peers where internal inflation was running far lower.
But analysts noted that Woolworths sourced about 90 percent of its merchandise locally.
Nedcor Securities retail analyst Syd Vianello pointed out that inflation in locally manufactured goods was high but would fall materially because domestic inflation was slowing.
On the clothing side, the retailer has been trading ranges up - moving price points higher to try to attract higher margins - while on the food side, inflation was up because of the higher income base of customers who were prepared to pay more.
Woolworths also trades in Australia via its Country Road operation.
In the six months to December, sales fell by 6.7 percent in Australian dollar terms but management said it had pencilled in a modest interim profit at the clothing and homeware unit.
There has been some pressure on Woolworths management to sell its Australian operation, although Susman has countered criticism by saying clear strategies have been put in place and concrete steps taken in the past two years to put Country Road on the right track.
At the close of trade yesterday, the Woolworths counter had retraced somewhat, moving 5c higher to R7.35.
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