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Guys, Woolworths Could Be In Serious Financial Trouble

Step foot inside the Orange Street Engen at just about any time of the day and you’ll see the Woolies doing a booming trade, but on the whole business isn’t exactly going according to plan.

The latest trading update shows that it may well be another awful year for the company, a far cry from a year or so ago when they were ‘one of the darlings of the investment community’.

Think we’re going a little overboard here? Ask the folks at Business Day:

The outlook for the group, and the sector, is now so grim it is difficult to imagine what management could do to recover its top-notch rating within the next 12 months.

“It’s really tough out there, the market is saturated, consumers are under tremendous pressure, Woolworths’ best hope is for a wipeout of the rand, that would boost its income from Australia even if the operations there did not perform,” one analyst said.

That market pressure is now reflected in the plummeting share price, down from more than R100 in December 2015 to R64 a year later.

The shares have performed so badly, in fact, that Woolworths features on the list of the 10 worst performers on the JSE’s top 40 companies in 2016.

More from Business Day:

There are few if any bright lights on the local horizon, say analysts. “Perhaps there’ll be an uptick in mining and agriculture that will lift consumer spending, other than that I can’t think of one positive influence that might help our retail sector this year,” said Evan Walker of 36One Asset Management.

With little prospect of economic growth, there is not much hope for an increase in jobs or wages. And consumers are generally borrowed to the hilt…

After years of aggressive expansion by the big players the South African retail sector was saturated, he said.

“Big decisions now need to be made on the country’s retail infrastructure,” Walker said. Some sizeable closures could be on the cards.

For Woolworths the planned move to a bigger store format may help, particularly if it increases its share of the market in dry groceries.

Pressure on its high-margin food offerings would continue, Walker said. “Their prices are too high for this weak environment. They made the same mistake nine years ago.”

Charge R40 for a sarmie and people will get angry.

I don’t imagine it’s panic stations just yet, but it’s certainly not a pretty picture for one of our retail giants.

[source:businessday]

This post was syndicated from 2oceansvibe.com. Click here to read the full text on the original website.

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