S Africa’s Woolworths prepares for inflation risk after upping dividend

Bloomberg

Woolworths Holdings Ltd. is preparing to battle the impact of soaring inflation in both its key markets, after increased sales and a growing cash pile allowed the South African retailer to raise the annual dividend higher than expected.
While a jump in prices is a global risk, Woolworths said the company’s Australian department-store business “should be somewhat mitigated by strong household balance sheets and high employment.”
South Africa may be a bigger challenge as severe energy shortages and rolling blackouts pinch the flagship food business, as shoppers are frequently prevented from cooking or refrigerating produce.
“Our food business is predominantly a fresh business,” Chief Executive Officer Roy Bagattini said in a Wednesday interview. “That disproportionately impacts us,” he said, alongside a shift to out-of-home food consumption post-pandemic.
The CEO was speaking after Woolworths announced a full-year dividend that beat estimates, alongside annual earnings. The shares jumped as much as 8.2% and were 6% higher as of 10:27 am in Johannesburg, the most in almost six months.
Having paid back more than 12 billion rand of debt in the last two years, the company now has a growing cash pile.
“We think we’re in a healthy position, with lots of firepower in the balance sheet and an opportunity to invest particularly where we see the biggest returns, which is the South African businesses,” Bagattini said. Most of the 10 billion rand the firm plans to spend in the next three years will be deployed in South Africa, he said.
A year ago, Zyda Rylands retired as the CEO of Woolworths South Africa to head the food unit, which contributes about half of revenue. She’s focused on making price reductions despite the country’s quickening inflation, which narrowed gross margins but helped maintain earnings growth amid growing competition for the wallets of the wealthiest shoppers.
Online food sales climbed 45%, albeit still contributing just 3.2% to the South African business. The gain was helped by an expanded on-demand delivery service, Woolies Dash, that has started to challenge Shoprite Holdings Ltd.’s Checkers Sixty60 one-hour grocery delivery app.