Africa's Woolworths sees up to 20% drop in half-year earnings

South Africa's Woolworths said on Monday it expects its half-year earnings to drop by up to 20%, dragged lower by an introduction of an accounting change combined with lean sales at its struggling units.

The retailer, which sells food, clothes and homeware, tends to be more shielded in a difficult economic environment in South Africa than its competitors as the company targets only higher-income clients. However, a number of factors hurt trade over the critical December period, the company said.

Woolworths said it is likely to post an increase of 3.8% in its sales in the 26 weeks ended Dec. 29, but its headline earnings per share (HEPS) - the main profit measure in South Africa - could fall by between 15% and 20%, compared with the 200.4 cents achieved last year.

The half-year outlook, however, is inclusive of new accounting rules applied by the retailer for the first time, excluding which HEPS would likely drop only between 7.5% and 12.5%.

In the 2020 financial year, the busy trading periods of Christmas and Boxing Day fell in the first half of the year, unlike 2019, when they were accounted for in the second half.

While sales in its food business unit grew by 7.8% when adjusting for this shift, the South African retailer's fashion, beauty and home division expects to see a 0.9% growth in sales and a drop of 0.5% in its struggling Australian business, David Jones.

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 specialty fast fashion brick-and-mortar stores such as Inditex's Zara.

Woolworths had purchased David Jones for $2 billion in 2014 but has had to write down its value twice since.

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