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Eat-at-home trend and online delivery foray make the di...

Business Maverick

BUSINESS MAVERICK

Eat-at-home trend and online delivery foray make the difference for Woolies

(Photo: Halden Krog / Bloomberg via Getty Images)

Positive sentiment surrounds SA retail shares after Woolworths advised that it expected positive trading numbers for the six months to December 2020. This follows last week’s healthy reports from Mr Price and TFG, which reported solid third-quarter sales and profit numbers after the coronavirus sales slump.

Middle-class South Africans have adapted to the curfew, social distancing requirements and the controversial alcohol ban by using online delivery channels to order tasty meals and other treats that can be enjoyed from the comfort of their homes. 

In a trading update released on Monday, retailer Woolworths says its online sales grew by 158% in the 26 weeks ended 27 December 2020. Demand for online delivery saw Woolies expand its click and collect offering and trial an on-demand delivery service.

The food business was the standout performer, growing sales by 10.9% in the period and 12% in the six weeks leading up to Christmas and New Year.

Price movement was 7.1%, impacted by mix, while underlying product inflation averaged 4.8% over the period — meaning that consumers opted for higher-margin products over grocery staples like baked beans or washing powder.

The eat-at-home trend is paying off for others too. Online meal-kit delivery service UCook recorded a “huge increase” in orders in 2020, according to this article in Maverick Life. The article adds that local online delivery apps like OneCart, Checkers Sixty60, Bottles, Quench and Zulzi have seen a 200% to 500% increase in daily orders since March 2020. 

Meanwhile, stay-at-home consumers ditched their mascara, little black dresses and glittery sandals over the festive period, negatively impacting Woolworths’ Fashion, Beauty and Home business, which saw sales decline by 11.2% over the period. Once again online rose to the occasion, growing by 118.8% and contributing 4% to South African sales. 

The Woolworths Financial Services book reflected a year-on-year contraction of 2.2% at the end of December 2020. Annualised impairments inched up to 4.1%, compared with 3.3% for the prior period — not great for Woolies, but a far cry from the pain that other retailers and some banks are experiencing. The retailer notes that the focus on customer collections and payment relief initiatives curbed the growth of the book, but limited the impairment rate for the period.

In Australia, home to the black sheep of the family David Jones, sales over the period declined by 8.8%. However, if one excludes stores in Victoria, where a 12-week lockdown negatively affected sales, the business, including online, grew by a promising 5.9%.

At Country Road, consumers were clearly focused on their little black dresses and other holiday accoutrements, with sales growth jumping by 6.7% in the last six weeks of the period. However, sales over the half-year declined by 5.2%. 

Overall, Woolworths beat analyst expectations by announcing that it expects adjusted diluted headline earnings per share to rise by between 17% and 22% to between 189 cents and 197.9 cents per share. 

If one includes the proceeds on a sale of a property by David Jones, the favourable renegotiation of various David Jones leases resulting in gains of R667-million (pretax) and the taxation benefit from the partial utilisation of assessed tax losses in David Jones, earnings per share are expected to jump to between 279 cents and 295.47 cents per share, 70.0% to 80.0% higher than the previous period.

Investors ploughed into the share, pushing the price up 8.7% to close the day at R43.82. DM/BM

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