Woolworths Holdings Ltd (JSE: WHL), a prominent retail giant, has faced significant challenges this year, reflected in a nearly 17% loss in market value year-to-date.
The company contends with mounting inflationary pressures within the country. Statistics South Africa reported a notable uptick in the inflation rate to 5.6% in March, while interest rates are at a 15-year high of 11.75%. Such persistent inflationary trends signal the potential for prolonged higher borrowing costs, likely impacting consumer spending habits. Indeed, Woolworths noted a decline in household expenditures, particularly in clothing and household items, due to reduced disposable income amid rising prices and borrowing costs.
Moreover, the company’s operations have been further disrupted by external factors such as load shedding, port congestion, and the impact of the Avian flu on food product availability. Consequently, Woolworths anticipates continued challenges in the second half of the year, with consumers under financial strain in domestic and international markets.
However, amid these adversities, Woolworths recently received approval from the Competition Tribunal to acquire Absolute Pets, South Africa’s largest specialist pet product company. This strategic move diversifies Woolworths’ operations and presents an opportunity to tap into the growing petcare market, potentially offsetting some of the challenges its core retail business faces.
Technical
Woolworths’ share price has been in a downtrend, trading below its 100-day moving average and confined within a descending channel pattern.
The channel’s upper boundary formed resistance at the R69.99 per share level. The selloff from this level sent the price plummeting toward the lower boundary. However, support was identified at R58.46 per share amid oversold RSI conditions, leading to a minor rebound. Currently, the share price has retraced toward the 23.60% Fibonacci Retracement level.
If the upward momentum persists, a breakout above the 23.60% level could signal further gains, potentially toward the 50% level. Conversely, the R58.46 per share support level may face retesting if bearish pressures reemerge. Overall, while Woolworths’ share price has faced downward pressure, the recent rebound suggests some resilience.
Summary
Despite facing challenges, Woolworths’ acquisition of Absolute Pets diversifies its operations, potentially mitigating some retail struggles. Technically, the stock’s rebound from oversold levels at R58.46 per share suggests resilience, but monitoring a potential breakout above the 23.60% Fibonacci Retracement level is key for potential upward momentum.
Sources: Statistics South Africa, South Africa Reserve Bank, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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