South Africa's Woolworths banks on cosmetics as profit dips

South African retailer Woolworths Holdings aims to double its market share in beauty products in its home market over the next three years, its chief executive said on Thursday, as the firm reported a drop in half-year profit.

Woolworths, an upmarket retailer which sells mostly clothing and food in South Africa, has only a 3 percent market share in cosmetics but its Australian department store chain David Jones has a long relationship with beauty houses.

"We see an ability to more than double our market share by 2020," chief executive Ian Moir told reporters in a media call, adding that the David Jones connection played a part in getting Chanel and Estee Lauder into South African stores.

Woolworths' slender beauty offering was costing the business shoppers, Moir said.

"We didn't have Chanel, we didn't have Estee, so we did not have a beauty business," he said.

Difficult trading conditions and clothing markdowns by competitors in both South Africa and Australia had hurt earnings, Moir said.

Woolworths reported a 4.3 percent decline in headline earnings per share (EPS) to 242.6 cents for the 26 weeks to December 25.

Headline EPS is the main profit measure in South Africa and strips out certain one-off items.

Shares in Woolworths were down 3 percent at 71.13 rand by 0812 GMT, compared with a 0.1 percent decline in the JSE's All-share index.

"Economic and market conditions are expected to remain difficult into the second half of the financial year. The environment in both markets is expected to continue to be highly promotionally driven," the firm said.

The company also plans to open its first food store in Australia, a business segment that has boosted Woolworths' growth in South Africa, where it is now the second-largest grocer.

The firm will invest as much as A$100 million ($77 million) into this business over the next 3 years, Moir said.

Kagiso Asset Management portfolio manager Simon Anderssen said signing up global cosmetic brands for its South African stores would boost Woolworths profits.

"Margins on cosmetics are usually lower than clothing but sales and profits per square metre of space can be higher, and expanding this category will help grow future earnings," he said.