Woolworths Holdings expects modest growth in its annual earnings as trading in the second half of the year proved more challenging than the first half.The retailer said on Thursday that for the 52 weeks to June 28, its HEPS is expected to be 2.5%-7.5% higher at 274.8c-288.2c.One of the highlights of the period was the return to full-year profitability of its Australian unit Country Road Group, though not to the extent Woolies had hoped before the war in the Middle East began.The group said in a trading update that after a strong first half, the second half presented a more challenging operating environment, with the war in the Middle East driving fuel prices and inflation higher, dampening consumer confidence and demand, and increasing operating costs. This, coupled with the resumption of interest rate increases in South Africa and Australia, resulted in consumers increasingly prioritising promotional offerings and essential purchases.Against this backdrop, group turnover and concession sales for the period grew by 4.3%, by 4.8% in constant currency, with positive sales growth in all segments of the business on a full-year basis. Growth in the second half, however, slowed to 3.3%, reflecting a particularly challenging final quarter.The group said Woolworths South Africa delivered solid turnover and concession sales growth of 5.4%, but trading momentum moderated to 4.1% in the second half, with particular weakness in the fourth quarter amid softer consumer demand and disruptions to trade. This impact was more pronounced in fashion, beauty and home (FBH).The group’s food business continued to deliver above-market turnover and concession sales growth of 5.7% and 3.7% on a comparable-store basis. Revenue through the Woolies on-demand service grew by 19.6%, with the online channel contributing 7.3% to South African food sales.FBH turnover and concession sales increased by 4.4% and 4.0% on a comparable-store basis. While trading momentum accelerated in the first half, the war in the Middle East had a pronounced impact on demand, particularly in the fourth quarter, resulting in second-half sales growth slowing to 2.6%. The Woolworths financial services book increased by 5.6% on a year-on-year basis. The deteriorating macroeconomic environment in the second half resulted in a higher impairment coverage. The annualised impairment rate for the year increased to 7% from 6.1% before.The group said while the apparel retail sector in Australia and New Zealand began to stabilise in the first half, higher interest rates and the Middle East war impeded any further recovery, with consumer sentiment, footfall and spend coming under significant pressure.Country Road Group sales increased by 1% for the period and by 1.6% on a comparable-store basis, with second-half sales growth declining by 0.5%. “Our deliberate focus to improve the quality of sales with greater full-price sales and reduced discounting resulted in a higher H2 gross profit margin year on year notwithstanding the impact of higher freight costs. This, coupled with the reduced cost of doing business as a result of our reset operating model, saw CRG pleasingly return to full-year profitability, albeit not to the extent initially envisaged before the onset of the war.”Woolworths will release its annual financial results on September 2.Business Day