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April 6, 2020

Woolworths cuts apparel orders, warns on FY profit drop

Woolworths South Africa is cutting down orders from its apparel suppliers as part of measures to manage costs during the coronavirus crisis, amid a warning it will miss full-year earnings by at least 20%.

By Hannah Abdulla

Woolworths South Africa is cutting down orders from its apparel suppliers as part of measures to manage costs during the coronavirus crisis, amid a warning it will miss full-year earnings by at least 20%.

The group, which has a presence in Australia and New Zealand also, says it has put in place a number of measures to manage the outbreak and its related impact, which has forced closures of its stores that sell fashion, beauty, and homeware (FBH). 

Measures include cutting CAPEX with only critical projects moving forward, focusing on facilitating trade and driving revenue including through online channels, and engaging with suppliers to reduce apparel product intake and to extend payment terms.

Its board, CEO and senior executive team have also agreed to forego up to 30% of their fees and salaries over the next three months. The savings arising from this will be used to provide additional financial support to staff who find themselves in “extreme hardship” as a result of the current crisis, the firm says.

Sales in the four weeks to the end of March for its food unit were up 27.6% year-on-year. But the shift of customer spend to essential products, as well as the compulsory closure of FBH stores (in South Africa) during the current lockdown period, will have a material impact on the segment’s results for the second half of the financial year, the group warned.

Sales in the four weeks to the end of March for its clothing and beauty and home arm, fell 27.8% year-on-year.

“The group fully endorses the actions taken by the governments in all the jurisdictions in which the group operates in their efforts to contain the spread of Covid-19,” Woolworths said. “The impact of the virus, including its socio-economic effects, will materially weaken the financial performance of the group for this financial year.

“Given the fluidity of the current circumstances, including the uncertainty of the duration and impact thereof, it is not possible to quantify its impact on the group’s earnings. However, the group remains committed and determined in its efforts to mitigate the reduction in earnings, optimise working capital and preserve cashflow and liquidity.”

Headline Earnings Per Share (HEPS), it added, for the 52-week period ending 28 June are “expected to be” more than 20% lower than the comparative period last year.

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