South African retail group Woolworths on Thursday reported a 19,6% increase in headline earnings per share to 53,1 cents for the 26 weeks ended December 2005 from 44,4 cents a year ago. An interim dividend of 24 cents per share was declared.
The group reported a 16,7% rise in revenue to R7,415-billion, while turnover grew by 16,3% to R6,995-billion.
Woolworths said the South African retail environment remained robust due to stable interest rates, low inflation, continued growth of the emerging black market and an increase in consumers’ real disposable income. This trend is expected to continue.
Operating profit increased by 19,6% to R730,3-million with an improvement in operating margin from 9,6% to 9,8%.
“This has been achieved despite our investment in initiatives which are designed to enhance future growth, including the World of Difference loyalty programme, an accelerated store-development plan and a customer-service improvement project,” it said.
The group’s gross profit percentage decreased from 32,9% to 32,7% as a result of the change in mix of its different businesses.
The share repurchase in March 2005 resulted in an increase in borrowings over the same period last year and a substantial increase in finance costs. The positive effect of the capital restructuring is reflected in the increase in headline earnings per share and an enhanced return on equity.
Headline earnings per share was impacted by 1,9 cents per share due to an increase in the effective tax rate as a result of secondary tax on companies payable on the dividend paid in September 2005, it said.
Clothing and home grew sales by 12,6% in total and 8,2% in comparable stores, with an average deflation rate of approximately 2,3%. There was good growth in women’s wear, attributable to the successful implementation of Woolworths’ new design-led process. This process is currently being rolled out to other departments.
Children’s wear also experienced good growth by providing improved value and a better range structuring, it said.
Food continued to perform exceptionally well and sales grew by 20,9% in total and 12,2% in comparable stores, with an average inflation rate of approximately 3,7%.
“Our strong growth is driven by our convenient locations and our continual focus on offering our customers differentiated products,” it said.
In corporate stores, the group expanded trading space by 4,2% in clothing and home and 6,5% in food over the period.
The in-store card, credit-card and personal loan books grew by 19,3% for the 12 months to December 2005. The net bad debt experience on the combined books increased to 2,8% of advances due to a planned extension of credit limits.
In Australia, retail sales were 6,7% higher in Australian dollar terms than the same period last year, with comparable store growth of 5,9%. There was a strong increase in unit sales growth, which was achieved by an ongoing focus on improving value, to make the business more accessible to a broader range of customers.
Overall total sales increased 1% from the same period last year. Retail represented a higher proportion of sales in line with Woolworths’ strategy. Net profit before tax increased from Aus$1,4-million to Aus$2,3-million.
Looking ahead, the group said given the current trading environment, it expects to deliver another year of solid growth in headline earnings per share, after adjusting for the non-comparable payments of secondary tax on companies. — I-Net Bridge