JOHANNESBURG (Reuters) - South Africa’s Woolworths Holdings will not pay dividends from its Australian businesses for two years in order to reduce debt levels there, its chief executive said on Thursday after the retailer reported a 2.9 percent drop in half-year earnings.
Woolworths, which sells clothes, food, beauty products and homeware, said it would cut its group interim dividend to 92 cents per share, down 15.2 percent from a year earlier.
“We’re taking a really prudent decision in Australia,” group CEO Ian Moir told the company’s half-year results presentation. “We want to get our debt levels down, we want to half the debt levels in Australia.”
The Australian businesses, which comprise David Jones and Country Road Group, have debt of just over 400 million Australian dollars ($284 million) and Woolworths wants to bring that down to about 200 million, Moir said.
“For where the market is, it’s the right thing to do.”
Woolworths paid a big premium to bulk up in Australia via David Jones as part of Moir’s ambitions to turn the firm into a leading southern hemisphere retailer, but has faced delays in redeveloping the business.
In 2018 the firm booked an impairment charge of 6.9 billion rand ($492 million) against the value of David Jones as a result of the cyclical downturn and structural changes that have hurt performance across the Australian retail sector.
At 1100 GMT, shares in Woolworths were up 1.94 percent as the firm rebounded to a profit before tax of 2.6 billion rand from a loss 4.1 billion rand caused by the impairment.
Woolworths said headline earnings per share (HEPS) fell to 200.4 cents in the 26 weeks ended Dec. 23, from 206.3 cents a year earlier. HEPS is the most widely watched profit gauge in South Africa and strips out certain one-off items.
Moir has admitted to mistakes when it came to its local fashion business, where poor product choices in clothing, especially in womenswear, had weighed on sales in Woolworths Fashion, Beauty and Home business.
Comparable store sales in that unit were 2.4 percent lower in the period, compared with a decline of 3.4 percent a year earlier.
In the first eight weeks of the second-half, sales there are up 5.5 percent.
“We really had to turn this business around and we’re well on track,” Moir said. “Our customers were angry with us..We weren’t giving them what they were looking for, everything was looking too young, too fashionable and too inappropriate.”
Moir said Woolworths will now focus on getting back to “beautiful basic” items in South Africa. It has also shrunk its EDITION brand, to appeal to its basic customer who doesn’t want too fashionable or too young items, he added.
($1 = 14.0372 rand)
($1 = 1.4063 Australian dollars)
Reporting by Nqobile Dludla; Editing by David Holmes and Keith Weir