Woolworths buoyed by fashion turnaround; affirms David Jones plan

South African retailer Woolworths Holdings Ltd reported a 2.1% drop in annual earnings on Thursday but cheered investors with a turnaround in its Fashion, Beauty and Home business that had weighed on sales.

Group Chief Executive Ian Moir has admitted previously to mistakes in its local fashion business, where poor product choices in clothing, especially in womenswear, hurt sales in the previous year.

The firm has since focused on what it describes as “beautiful basic” items that better target its customer base.

Sales in the Woolworths Fashion, Beauty and Home business rose by 1.5% and comparable sales by 1.0% in the 52 weeks ended June, reversing a 1.5% fall the previous year.

“The second-half is really worth calling out within Fashion, Beauty and Home. We got it back to where it should be, We’ve refocused the business and made the changes we talked about,” Moir said during the company’s results presentation.

“We’re getting back to what Woolworths is all about. Its core basics are there, which are the building blocks of your wardrobe. We’ve reminded ourselves just who our customers are and we’re delivering to them.”

Second-half sales rose 5.5% while comparable sales were up 4.7%.

Group sales rose 3.9% to 78.2 billion rand ($5.13 billion), with adjusted profit before tax down 3.7% to 4.6 billion rand.

Shares in the company were up almost 5% at 54.53 rand by 1206 GMT as investors welcomed the unit’s turnaround and looked beyond a fall in the group’s adjusted headline earnings per share to 356.3 cents from 364.1 cents.

DAVID JONES PLAN

In Australia, David Jones, which was significantly impacted by sales disruption from its Elizabeth Street store refurbishment, saw sales fall by 0.8%, with comparable sales dipping 0.1%.

David Jones has been responding to pressures all department store operators face as shoppers opt for broader product ranges from global online players such as Amazon.com Inc, or speciality fast fashion brick-and-mortar stores like Inditex’s Zara.

The business is in the middle of a plan by Moir to cut costs, turn its food business around and boost e-commerce investment to increase profits and sales.

David Jones is targeting a 10% online sales contribution to total sales by 2020 and 20% by 2025, compared with 7.7% in the past year.

Moir said David Jones will save about $7 million per year in costs after reducing some job positions and has identified another $30 million of costs that it can remove from other areas.

David Jones is also looking at exiting “marginal or undesirable leases” on expiry or earlier by negotiating with landlords more “aggressively”, Moir told analysts.

“We’re absolutely focused on getting our space down. Where we believe we can get to is a reduction of around 20% of our space by 2026,” he said.

In the food business, David Jones will launch its first standalone store in October and is also launching 10 BP pilot forecourt sites by mid-2020.