Woolworths SA flags writedown of David Jones investment
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Woolworths SA flags writedown of David Jones investment

South Africa's Woolworths Holdings plunged the most in almost two years after South Africa's largest food and clothing retailer said profit will be hurt by a revaluation of its David Jones business in Australia.

Earnings per share are expected to be more than 20 per cent lower, in part because of the Australian review, the Cape Town-based company said in a statement on Monday.

The South African company bought the Australian department store chain for about $2.1 billion in 2014.

The South African company bought the Australian department store chain for about $2.1 billion in 2014.

Photo: Vince Caligiuri

Revenue increased by 2.5 per cent in the 26-week period ending December 24, compared with 6.7 per cent the previous year. Sales at David Jones fell, as did revenue in the South African fashion, beauty and home division.

The weak performance at David Jones was "related to changes in styling and the increased introduction of private-label Woolworths brands," Alec Abraham, an analyst at Johannesburg-based Sasfin Securities, said.

"In South Africa, the fashion performance is unsatisfactory."

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The stock slumped as much as 9 per cent, the most since February 2016, and traded 5.5 per cent lower at 5,985 rand in Johannesburg. The stock has fallen 17 per cent in the past 12 months, compared with a 5 per cent gain on the FTSE/JSE Africa General Retailers Index.

Woolworths's overall performance shows that its focus on wealthier South African customers hasn't made it immune from an environment of weak consumer confidence in the country, to some extent because of unemployment of almost 28 per cent.

South Africa's new ruling-party leader, Cyril Ramaphosa, said on Saturday that economic revival was one of his main priorities, and that he sees higher growth in 2018 than the 1.2 percent forecast by the central bank.

Headline earnings per share are expected to have declined between 12.6 per cent and 17.5 per cent over the relevant period.

Earnings per share will also be down as a result of the inclusion in the prior period of profit from the sale of its landmark store in Sydney.

David Jones assets were valued at 24.2 billion rand ($2.5 billion) as of June 25, Woolworths said in August. The South African company bought the Australian department store chain for about $2.1 billion in 2014.

David Jones rival Myer released a second quarter trading update in December which revealed a horrow start to the all-important Christmas trading period.

Myer said sales in the first two weeks of December were down 5 per cent on the same fortnight the previous year.

Myer blamed subdued consumer sentiment for the soft result.

New figures on Monday showed consumer confidence had risen to a more-than-four-year high thanks to surprisingly strong building approvals and retail spending figures.

The latest ANZ-Roy Morgan Consumer Confidence Index rose 1.2 per cent to 123.5 points in the week to January 14 - its highest level since October 2013.

Pushing the index higher was positive sentiment around current economic conditions, but respondents' views toward the future financial and economic conditions were slightly weaker than the prior week.

ANZ's head of Australian economics David Plank said the rise in confidence was consistent with upbeat official data on building approvals and improving retail sales.

Wires with staff reporter

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