Woolworths interim diluted headline earnings per share down

South African retailer Woolworths Holdings on Thursday reported a 12.3% decline in diluted headline earnings per share to 55.6 cents for the 26 weeks ended December 2007 from 63.4 cents a year ago.

The interim dividend was maintained at 29.5 cents per share.

Revenue was up 17.7% at R10.56 billion, while operating profit grew 2.9% to R985.8 million.

The group said its turnover grew by 16.1% to R9.8 billion, with lower growth in the second quarter reflecting the slowdown in South African consumer spending.

Its gross margin increased from 34.3% to 34.8%.

Operating profit, excluding the non-comparable BEE charge, grew by 5.6% to R1.0 billion, impacted by a 28% increase in expenses primarily due to planned expenses in South African retail, higher bad debt and non-comparable concession costs in Country Road.

Interest paid increased by 40.9% due to higher borrowings to fund the growth in the financial services books and increasing interest rates.

Profit down

This resulted in profit before tax and exceptional items, excluding the non-comparable BEE expense of 25.5 million rand, decreasing by 2.1% to R769 million.

The effective tax rate increased due to a higher relative STC charge and tax on Country Road's profits, previously shielded by tax losses.

The group said continued increases in interest rates, the implementation of the National Credit Act and rising inflation, especially in food and fuel, have led to an ongoing slowdown in South African consumer spending. The growth in retail sales declined steeply in the second quarter of the year.

Clothing and general merchandise grew sales by 7.3% in total and 4.7% incomparable stores, with an average inflation rate of approximately 9.6% over the period.

Good performances in children's wear, footwear and accessories, the woman's wear Re and W Collection ranges, and branded beauty were offset by disappointing sales in core woman's wear ranges and lingerie.

Food continued to perform well, although below expectations. Sales grew by 18.8% in total and by 9.7% in comparable stores. Inflation averaged approximately 12.1% over the period.

Innovation; enhanced value

Food continued with innovation in new and upgraded products, enhanced value through competitive pricing of key value items and promotions, and improved availability, especially over the Christmas period.

The financial year has 53 trading weeks and as such the key trading day of 24 December is not included in the reported sales figures.

Trading space was expanded in clothing and general merchandise by 4.8% (2006: 4.2%) and by 13.1% (2006: 13.1%) in food, including the first large-format food market at Farrarmere in Gauteng.

Financial services' revenue increased by 39.0% as a result of growth in the combined books of 20.5% and increases in interest rates. Book growth has slowed significantly from the second quarter. The interest yield increased to 22.9% (2006: 18.9%).

The tougher collections environment resulted in net bad debt, including collection costs, increasing to 7.8% (2006: 4.1%) of the gross book.

Strong sales

Country Road had a strong sales performance, growing turnover by 35.0% in Australian dollar terms. Retail sales, excluding concession sales, grew by 21.4% in Australian dollars and by 16.5% in comparable stores compared to the prior period. The focus on providing better value and improved fashionability continues to be well received by customers.

Looking ahead, Woolworths said higher interest rates and the shift in the credit environment has and is impacting our business.

The group's focus will remain on price competitiveness, product innovation, quality and tight cost control.

"We expect the difficult current trading conditions to prevail throughout 2008 and consequently the second half profits will remain under pressure," it concluded.

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