Woolworths may bail out troubled Australian units to the tune of R1 billion due to Covid-19

Woolworths may give its Australian businesses up to R1.1 billion in funding support to survive the impact of Covid-19, after its Country Road stores were forced to close during that country’s lockdown while David Jones suffered from lower numbers of people coming to shop.

The clothing and food retailer said in a trading update on Wednesday it is looking at providing about R871million of funding support to its Australian businesses but has also made provision to further “in-principle support” of R290 million should they need it.

“A review of the capital structure of the Australasian entities has been initiated and will include the restructuring of its borrowings to ensure a more sustainable funding structure. UBS Australia has been appointed to support this process and will conduct a full review of options relating to the Australasian property portfolio,” said Woolworths in a statement.

Woolworths has been struggling with the Australian operations even before Covid-19. The group had to write down its stake in David Jones few times since 2014, losing multi billions of Rands in the process.   

While Woolworths had planned to complete the refurbishment of its David Jones store in Sydney by March and work on turning that business around this year, Covid-19 induced lockdowns in Australia caused David Jones’ sales to decline by 35.8{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in the eight weeks to end-April.

The Country Road Group was forced to close all stores because of challenges in maintaining social distancing protocols given their smaller store formats.

As a result, sales plummeted 50.4{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in local currency in the eight weeks to end-April compared to the previous comparable period. Woolworths said it is currently in discussions with Australasian landlords about an accelerated restructure of the David Jones network of stores and reduction in floor space which should help reduce its costs.

But Country Road stores started re-opening on 22 May and David Jones’ is already seeing improvement in foot traffic, said Woolworths.

In SA, Woolworths said its Food business has been resilient throughout the lockdown period. But the spike in sales it recorded in the weeks leading to the lockdown has now moderated. Less people are visiting its stores but their basket sizes are bigger than before. Total sales in the eight weeks to end of April grew by 17.4{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}.

Woolworths Fashion Beauty Home business on the other hand recorded a 61.4{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} decline in sales since the lockdown began to the end of April it was initially not allowed to trade and later opened only to sell winter clothing and other essential items. It only started selling all goods online on 14 May and is preparing itself for more activity when Level 3 of the lockdown kicks in on 1 June.

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