UPDATE 1-S.Africa's Woolworths buoyed as wealthy shoppers keep spending

Thu Aug 28, 2014 10:53am EDT

(Recasts, adds analyst comment and Massmart)

By David Dolan and Tiisetso Motsoeneng

JOHANNESBURG Aug 28 (Reuters) - South Africa's Woolworths Holdings posted a double-digit rise in full-year profit on Thursday as affluent shoppers kept spending on organic jam and ostrich steaks despite the weak economy.

Woolworths, a food and clothing retailer similar to Britain's Marks and Spencer, is one of the industry's few recent strong performers, as most South African consumers have been suffered under poor economic growth and rising debt.

Its results were in stark contrast to those of another retailer, Massmart Holdings. The Wal-Mart Stores unit reported a 25 percent tumble in first-half profit, reflecting the knock-on effect from waves of strikes this year.

"The higher income group is the only one that really has disposable income," said Wayne McCurrie, a portfolio manager with Momentum Wealth. "Obviously, the lower-end consumers, the debt levels are very high."

Africa's most developed economy barely grew in the second quarter of this year, data showed this week. Although it avoided slipping into a recession, South Africa has been battered by severe labour unrest in the mining and engineering sectors.

The lacklustre growth outlook is particularly bad news for lower-income workers, who are already struggling to service their debts. Nationally, household debt averages three-quarters of disposable income.

Underscoring the problem, this month African Bank Investments, a lender to low-income borrowers, was rescued by the central bank after failing under a mountain of bad debts.

But the malaise appeared to have little impact on Woolworths. The retailer, which sells upmarket products from soy milk to organic cotton socks, reported an 18 percent increase in underlying profit in the 52 weeks to end-June.

After costs related to its recent acquisition of Australian retailer David Jones, and currency exposure, profit growth was 10 percent.

Massmart, however, was squeezed as cost conscious consumers felt the brunt of the economic downturn, particularly a five-month platinum industry strike that ended in June.

"Our stores in towns immediately affected by mining unrest and regions traditionally associated with migrant mine labour, have experienced significant sales declines," the company said in a statement.

Shares of Woolworths were up 2 percent at 79.12 rand at 1402 GMT, while Massmart shares were down 1.6 percent at 132.22 rand.

(1 US dollar = 10.6085 South African rand) (Editing by Ed Stoddard, David Holmes and David Evans)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.