Woolworths is rocking

Woolworths latest results showed strong revenue growth but did not share important information about its planned David Jones disposal.

The retailer released a summary of its unaudited interim group results for the 26 weeks that ended on 25 December 2022.

The results were very positive, with a 15% increase in turnover, a 63% increase in profit before tax, and a 75% increase in earnings per share.

The last time Woolworths grew its revenue at this rate was in 2016, which shows why it was such an impressive set of results.

Woolworths Food increased its revenue for the period by 7.3% despite disruptions caused by load-shedding. Power outages caused significant losses through trading hours and food spillages.

Woolworths CEO Roy Bagattini described their food division as the “holy grail of food retailing”, but its performance was worse than Checkers.

For the same interim period, Shoprite reported a 16.9% increase in revenue from its Checkers stores – significantly better than Woolworths Food.

Bagattini downplayed the difference, saying Woolworths Food is not a mainstream retailer and offers value for what people pay.

“It’s really important to understand that we’re not Checkers,” he told Business Day.

Australian and New Zealand segment

During the Covid-19 lockdowns, Woolworths’ Australian and New Zealand segment experienced significant challenges.

As a result of the lockdowns, Country Road and David Jones stores experienced low sales volumes and endured great losses.

Things improved over the last six months, with Country Road reporting a 31.6% increase in sales and David Jones reporting a 26.5% increase.

In December 2022, Woolworths announced that it would be disposing of its entire shareholding in Australian clothing retailer David Jones.

Woolworths acquired David Jones in 2014 for R21.4 billion, which according to Daily Investor’s calculations, was at a price-to-earnings (P/E) ratio of 24 times.

Woolworths has not disclosed the price at which it would sell David Jones. It only stated that the disposal would remove R22 billion of liabilities from its balance sheet.

David Jones’ total assets are R25.7 billion, with total liabilities of R22 billion. It gives David Jones a net asset value of R3.75 billion.

Under Woolworths’ guidance, David Jones has also been unable to grow its profits and significantly decreased the company’s profit before tax up to 2022.

Based on the company’s net asset value and its weak financial performance, Woolworths would likely only get a fraction of David Jones’ value from the sale.


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