Woolworths Holdings Limited (JSE: WHL) reported a disappointing first-half performance, with headline earnings per share (HEPS) falling 7.5% year-on-year. The first-half results revealed a 4% share drop, with revenue at R37.93 billion, showcasing a 5.8% year-on-year (YoY) increase.
This decline stemmed from several factors, including weakened consumer spending due to high inflation and rising interest rates, which have squeezed disposable income, leading to cuts in discretionary spending. Macroeconomic headwinds have also played a significant part, with the ongoing energy crisis and logistical challenges in South Africa, combined with deteriorating consumer sentiment in Australia, further impacting the company’s performance. Additionally, the company’s fashion business continues to grapple with product availability and execution issues, resulting in lower sales and margins.
Despite these challenges, the company is taking steps to address them. They are investing in product availability for the South African fashion business by expanding their store network and technology, implementing measures to control expenses, and maintaining a strong balance sheet for a financial buffer.
Technical
The technical landscape suggests a bearish trend for Woolworths. The share price is below key moving averages, including the 50-SMA (blue line), 100-SMA (orange line), and 200-SMA (red line), indicating a strong short-term bearish trend. The oversold Relative Strength Index (RSI) suggests a potential short-term bounce, but the overall trend remains negative.
Short-term trading opportunities towards the previous session’s low of 6,100 cents if the downward pressure on the price continues. A successful bridge of the initial support on significant volume could trigger a run, with the ten-month low of 5,824 cents acting as the next significant level lower.
On the upside, a recovery scenario may offer short-term trading opportunities towards initial resistance at 6,635 cents price level. A break above the initial resistance on significant volume would leave the 7,004 and 7,286 cents within the bulls’ reach in the near term.
Summary
Woolworths’s share price faces significant pressure due to weak fundamentals and a bearish technical outlook. While a short-term bounce is possible, the overall trend remains negative. A breach below 6,100 cents could trigger further declines, while a recovery above 6,635 cents may signal a short-term bullish move.
Sources: TradingView, Woolworths, MoneyWeb, BusinessDay, TimesLive.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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