Woolworths benefits from Australian acquisition

South African retailer Woolworths reported a 21 percent rise in first-half profit on the back of its purchase last August of Australian fashion retailer Witchery Group at 181 million dollars. Total sales rose 18 percent to 16.7 billion rand (1.88 billion dollars),

with its Australian business delivering a 55.6 percent surge in sales.

Explaining their success, the company stressed that despite the “Economic conditions in South Africa will remain constrained, especially in the lower- and middle-income segments of the market where consumer debt levels remain under pressure,” “The upper-income segment in which we operate continues to show some resilience. Trading for the first six weeks of the second half of the financial year has been positive, and we expect sales growth to be broadly in line with the first half.”

Headline earnings per share (earnings per share excluding one-time items: HEPS) were 164.2 cents or 1.23 billion rand (139 million dollars) in the six months to end-December compared with 135.7 cents or 1.01 billion rand (113.562.38 million dollars) a year earlier.

Revenue rose 18 percent to 16.8 billion rand (1.88 billion dollars). Sales at stores open for more than a year climbed 9.4 percent, the Cape Town-based a South African food and clothing retailer said in a statement Thursday. "We expect sales growth to be broadly in line with the first half," the company added.

“These are excellent results, way ahead of the market,” said Evan Walker, a portfolio manager at 36One Asset Management who commented the results for Bloomberg. “Second-half prospects are ahead. They are well positioned on all ranges, be it food or clothing. The upper middle class is immune to the economic slowdown.”

Shares in Woolworths have lost almost a 7 percent so far this year, largely in line with the broad sell-off of local retailers but under performing a nearly 5 percent gain on the blue-chip JSE top 40 index, highlighted analysts surveyed by Reuters. Woolworths represents the largest weight in the FTSE/JSE Africa General Retailers Index at 28 percent. Woolworths bought Witchery Group from Gresham Private Equity through its Australian business Country Road for 172 million Australian dollars in September 2012. The acquisition has proved to be a boost for the South African retailer, which is going through the bumps of a worn costumer suffering the economic constrains within its domestic market.