Woolworths targets online as shoppers take to food delivery service

Retailer Woolworths says that the Covid-19 pandemic, and resulting lockdown continues to have a pronounced impact on the group.

In a trading update on Tuesday (27 May), Woolworths noted that group turnover and concession sales in the first nine weeks (to 1 March) of the second half of the financial year (H2) was broadly in line with that of the prior comparable period (+1.9% in constant-currency terms).

It said that the temporary closure of the majority of its non-food stores, coupled with the significant decline in foot traffic and consequent loss of trade, saw turnover and concession sales decline by 18.5% in the subsequent eight weeks to 26 April (-18.8% in constant-currency terms).

“The pace of decline has since slowed as lockdown restrictions have begun to ease. The 2019 financial year included a 53rd week, which resulted in a shift in trading weeks in 2020 compared to the prior financial year,” it said.

Woolworths said that group turnover and concession sales grew by 4.2% in the first nine weeks of H2, versus a decline of 17.0% in the subsequent eight weeks.

“We expect constrained trading conditions to persist over the remainder of the second half of the financial year. Management has intensified its focus on liquidity, minimising operating and capital expenditure and managing working capital across the group,” it said.

Investments in strengthening online capabilities continue to be prioritised, given the growing importance of this channel.

To stimulate trade and manage inventory levels throughout this period, Woolworths said that management has executed a series of focused promotional and clearance initiatives targeted at generating and preserving cash, which will negatively impact this financial year’s gross profit margin.

Notwithstanding the considered actions taken by management, the wide-ranging effects of the pandemic and consequent lockdowns will be likely to have an adverse impact on the Group’s Adjusted headline earnings per share (HEPS) and cash flow in the second half of the financial year.

Woolworths Food

While the weeks immediately preceding the lockdown saw significant spikes in trade, the retailer said that demand has since moderated with shopping patterns reflecting reduced footfall but increased average basket size.

“Woolworths’ foods business has been resilient throughout this period, supported by strong relationships across the supply chain,” it said.

Sales and concession sales in the first nine weeks of H2 grew by 7.5% and growth accelerated to 17.4% in the subsequent eight weeks to end-April.

Sales growth in May has remained strong to date, despite trading conditions still being constrained by the impact of the lockdown, social distancing, and the closure of our hot food counters, wine alcoves and WCafé business.

“We continue to intensify our focus on enhancing our online platform to better service the significant increase in demand through this channel,” it said.

Woolworths Fashion Beauty Home (FBH)

The performance of the FBH business has been materially impacted as a result of the extended national lockdown, which saw the temporary closure of stores up until 1 May, the group said.

Sales in the first nine weeks of H2 grew by 1.9% but the ensuing eight weeks to end-April delivered a decline of 61.4%. FBH stores have now reopened to sell essential items only (which comprise of winter clothing, footwear, personal care and bedding).

Online deliveries in these essential categories have resumed with effect from 1 May, and in addition online sales of all goods has been permitted since 14 May, which has since stemmed the pace of the sales decline over the most recent period, it said.

Financial Services

Woolworths Financial Services has been negatively impacted by the closure of stores, a pull-back in non-essential spend and lower prevailing interest rates, all of which have placed pressure on book and revenue growth.

“In addition, a deterioration in customer collections will increase impairments for the second half of the financial year. In response, management has taken proactive steps to increase collections capacity, review credit risk strategies and implement customer relief programmes,” it said.

Woolworths said it expects the challenging operating environment brought about by the pandemic, to continue for the foreseeable future.

“While the business is well prepared to take full advantage of any improvement in trading conditions as government restrictions continue to ease, these circumstances also present opportunity to take clear and decisive actions to improve the effectiveness of our business model.”