Woolworths warns of likely 20 per cent profit fall

South African retailer Woolworths expects profit for the 52 weeks to June 28 to fall more than 20 per cent year on year, hit by a drop in sales owing to measures to prevent the spread of the coronavirus.

In its markets of South Africa, Australia and New Zealand, governments have enforced weeks-long lockdowns or urged citizens to stay home, prompting Woolworths to close outlets selling clothing, beauty and homeware products.

“The temporary closure of non-food stores ... decline in foot traffic and consequent loss of trade are likely to have a substantial impact on our earnings and cashflow,” the company said in a statement.

While it benefited from a 27.6 per cent rise in food sales in South Africa in the four weeks to the end of March as consumers rushed to stock up on goods, this was accompanied by a similar decline in its fashion, beauty and home unit.

It also saw sales slump in its Australian and New Zealand businesses, namely clothing outlets Country Road and David Jones.

An anticipated fall in disposable income is expected to drive up bad debts as consumers miss payments on store credit, while lower interest rates will cut its income from lending. The company said this, combined with the fall in sales, would likely result in a more than 20 per cent decline in profits, though the exact impact was still difficult to quantify.

To try and mitigate the damage, it said it was focusing on boosting online sales and cutting costs and capital expenditure, with only critical projects moving forward.

The board and senior executive team will forgo 30 per cent of their fees and salaries over the next three months, the statement continued, with the savings used to provide support to staff members that face extreme hardship as a result of the current crisis.

The company’s shares rose 2.2 per cent at the market open, lagging a 3 per cent rise across the Johannesburg Stock Exchange.