February 16, 2017 / 9:14 AM / a year ago

UPDATE 2-South Africa's Woolworths banks on cosmetics as profit dips

* Aims to double share of S.Africa beauty products market

* Weak economic growth, competition hit earnings

* Headline half-year EPS drops 4.3 pct

* Truworths also reports lower profits (Adds Truworths)

By TJ Strydom

JOHANNESBURG, Feb 16 (Reuters) - South African retailer Woolworths Holdings aims to double its share of the country’s beauty products market in three years, its chief executive said, as the group reported a drop in half-year profit.

South African retailers have struggled to grow earnings as weak economic growth and clothing markdowns by competitors hit sales, with Truworths International also reporting lower profits on Thursday.

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 Dec. 25.

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

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 group will invest as much as A$100 million ($77 million) into this business over the next three 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.

Fashion chain Truworths International reported a profit drop for the 26 weeks to Dec. 25, with headline EPS down 3 percent to 392.6 cents.

Shares in Woolworths were down 3.7 percent at 70.71 rand by 1326 GMT. Truworths’ shares were 1.9 percent lower at 81.80 rand, while the JSE’s All-share index was flat. ($1 = 1.2972 Australian dollars) (Reporting by TJ Strydom; Editing by Ed Cropley and Susan Fenton)

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