JOHANNESBURG (Reuters) – South African retailer Woolworths Holdings Ltd posted a 15 percent fall in half-year profit on Thursday hurt by a hefty write-down charge on the value of its David Jones business in Australia and tough trading conditions in its home market and Australia.
Woolworths paid a big premium to bulk up in Australia via David Jones as part of Chief Executive Ion Moir’s ambitions to turn the firm into a leading southern hemisphere retailer, but the delayed execution of certain initiatives aimed at transforming David Jones is threatening that ambition.
“A challenging market, along with some mistakes in the implementation of new systems and ranges, has had an impact on our clothing businesses both in South Africa and Australia,” Moir said in a statement.
Australia has recorded soft retail sales growth for months as cut-throat competition, relentless price discounts and online competition sap demand for brick-and-mortar shopping.
While in South Africa retailers have struggled to grow earnings as weak economic growth and clothing markdowns by competitors hit sales.
Woolworths, which sells groceries, food and homeware, said headline earnings per share (HEPS) fell to 206.3 South African cents in the six months to Dec. 24, from 242.6 cents a year earlier, while earnings per share turned into a loss of 505.9 cents on the David Jones impairment.
Woolworths booked a non-cash impairment charge of A$712.5 million ($556.04 million) against the carrying value of David Jones as a result of the cyclical downturn and structural changes that have hurt performance across the Australian retail sector.
The retailer, which paid 21.4 billion rand ($1.84 billion) for David Jones in 2014, said the impact of these changes have been exacerbated by poor or delayed execution in certain key initiatives in David Jones.
David Jones sales were 3.3 percent lower on a comparable basis, while comparable store sales were 3.4 percent lower in Woolworths South Africa, hurt by underperformance in Woolworths Fashion, Beauty and Home.
The group declared an interim cash dividend of 108.5 cents, an 18.4 percent decrease on the prior period.
“Encouragingly, we are seeing signs of recovery now, with political change in South Africa expected to lead to increased consumer confidence,” Moir said.
South Africa’s new president, Cyril Ramaphosa, was sworn in as head of state last Thursday after his scandal-plagued predecessor Jacob Zuma resigned on orders of the ruling African National Congress.
($1 = 1.2814 Australian dollars)
($1 = 11.6563 rand)
(Reporting by Nqobile Dludla; Editing by Gopakumar Warrier)