David Jones purchase sealed, sales update

Woolworths have released a 52 week trading statement this morning, for the 52 weeks to end 29 June 2014. As a result of retailers measuring their business from week to week, sometimes you compare to a "53 week year" if you get my drift. For the purposes of comparing, Woolworths use both a 52 and 53 week comparison, because the prior financial year.



So, here goes: Group sales increased by 14.4% for the 52 weeks of the 2014 financial year over the corresponding 52-week period in 2013 (12.7% on a 52:53 weeks basis). Sales in comparable stores grew by 9.1% (52:53 weeks: 7.4%).


That is good. 12.7 percent when comparing the two different years trading is decent. Where has all the growth come from? Well, in Aussie Dollar terms sales increased 20.3 percent as a result of the Witchery transaction, excluding that, 4.2 percent. These are foreign sales (Australian Dollars) and foreign earnings, more on that in a second.


Clothing sales have been quite strong, there has also been significant pricing movement, meaning the price of the goods to Mr and Mrs (and Ms) consumer has moved higher. Ditto with food sales, which were roughly inline with group sales. So now we have a fair idea of what sales are likely to be for the full year, remembering that sales segmentally were as follows last year, Clothing and General Merchandise was 10,552 billion Rand, Food was 17.149 billion Rand whilst Country Road (AUS) sales were 706 million AUD. That all translated to at a group level to 35.399 billion Rand (include the financial services business).

Simple math will see you expecting just shy of 40 billion Rand worth of sales at a group level, the biggest jump is in the Aussie sales as a result of the Witchery acquisition, now it represents 21.3 percent of group sales, if my math is correct. That is about to climb significantly, because the announcement this morning is that the Australian courts have approved the scheme of arrangement between the David Jones shareholders and Woolworths. From the 1st of August this year the deal is expected to go through.


The stock is off three percent in a broader retail sector sell off, in part because the sales update is maybe a little light, in part the fact that they are shelling out over 23 billion Rand (David Jones and Solomon Lew Country Road purchases) and in part as a result of an interest rate decision today, the SARB's MPC have been meeting and will deliberate a little later today. There are some folks who are suggesting that we may even see a 25 basis point hike in rates. It is making Michael mad, raising rates and fighting inflation at the expense of growth, which is frigid.


Lastly, with the David Jones deal having gone through, Woolworths change significantly their revenue mix from being a local business with an Australian asset to a business that will now have sales down under of 30.5 billion Rand (Annual sales from David Jones last year was 1,845 billion Aussie). Against Group sales, if I add the increase and what to expect here from the group (close to 40 billion), I get to group sales of 58.36 billion Rand. And the combined expected sales from Aussie Country Road and from David Jones would top 30 billion, in fact 30.5 billion. Which by my calculations means that Australian sales represent 52.3 percent of group sales. This is no longer a South African company.