Food offsets tanking Woolworths clothing sales

  • Woolworths has issued a trading update showing that sales across the group shrank by 1.1% in the year ended on 28 June.
  • Had it not been for Woolworths Food, the only division that grew sales during this period, Woolworths would have recorded a much deeper decline in sales.
  • Price movement in the food division was also much higher than inflation.

Woolworths' clothing divisions continued to drag down the retailer's performance in the 2020 financial year, with sales shrinking by double digits across all three – Country Road, David Jones and Woolworths Fashion and Beauty – in the 52 weeks to 28 June.

Woolworths has attributed most of its weak performance in 2020 to the Covid-19 lockdowns which forced it to close stores across its African and Australian operations at some point between March and May. The period of lockdowns saw sales at Country Road tank by 50.4%. At David Jones sales were down 35.8% and Woolworths Fashion and Beauty lost the most when sales contracted by 61.4%.

The easing of lockdown restrictions didn't help much as sales in these three businesses continued to fall.

"The operating environment is challenging and fluid and will remain so for the foreseeable future. Operations are being dynamically managed in terms of Covid-19 guidelines across Southern Africa and Australasia," said Woolworths in the trading update published on Friday morning.

But analysts have previously pointed out that Woolworths challenges didn't start at the beginning of the lockdown. In the first half of its financial year, which ended in December 2019, adjusted sales in all other businesses, save for Woolworths Food, were either down or grew below 1%, with Australian operations negatively affected by the bushfires.

So, when combining pre-lockdown and post-lockdown sales, Woolworths sales shrank 1.1%, mostly because Woolworths Foods masked bad performance across the other divisions. Woolworths Food was the only business unit that grew sale in the 52-week periods, by 10.7%. It was also the only business where prices moved above inflation, increasing by 6.5% in the food business compared to a meagre 0.7% in the local fashion division.

Woolworths did not reveal price movements in Australian businesses, but Woolworths said that to stimulate trade throughout the 52-week period, its management executed "a series of focused promotional and clearance initiatives" to move inventory and free up cash.

Not only is the group dealing with massive shrink in sales in what used to be its core businesses in the past, but Woolworths Financial Services also recorded a deterioration in customer collections. Its impairments for the year ended on 28 June rose to 7.9% compared to 3.7% over the same period in 2019.

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