Woolworths warned on Tuesday that half-year profit could decline by more than a quarter as a result of a weak performance at its clothing division, casting a shadow over CEO Roy Bagattini’s plan to reposition the unit as an integral part of the business.
The Cape Town-based retailer, valued at R58bn on the JSE, said headline earnings per share (HEPS), which strips out one-off and exceptional items, were expected to be between 148.4c and 158.6c for the 26 weeks to December 29, a decline of as much as 27% on the previous year. Adjusted HEPS are forecast to be between 16% and 21% lower.
“While our food business continues to perform strongly, the weaker-than-expected performances of our apparel businesses in both geographies [SA and Australia] resulted in negative operational leverage for the group,” said Woolworths. Besides its main SA business, the company owns clothing subsidiary Country Road in Australia.
Turnover and concession sales at the interim stage increased by 5.7%, and by 6.2% on a constant currency basis compared with a year ago, driven by the food division, though apparel remained weak. Food sales were more than 11% higher, while apparel grew just over 2% in SA b ut fell more than 6% in Australia. Clothing sales growth at home in the last eight weeks of the period was constrained at 0.9%,
The mixed performance suggests Bagattini’s strategy to revive the fashion and beauty division isn’t paying off yet. Launched in 2020, the plan rests broadly on repositioning the clothing division to appeal to younger and more diverse customers.
Woolworths has closed unprofitable stores, invested in online channels and increased the proportion of fashion, beauty and home products that are sold at full price rather than being marked down.
The continued weak performance of apparel juxtaposed with the thriving food division is likely to reignite debate about the logic of spinning off the apparel division and opening it up to investors who are only interested in getting exposure to one of the country’s most highly rated food businesses.
Woolworths late supplier deliveries and changes in processes and statements at its distribution centre led to temporary delays in products. Its Australian unit, Country Road, meanwhile, was weighed down by the ongoing overhaul of its operating model.
The company is clearly focusing on its core strengths in food and beauty while working to restructure underperforming segments.
— Shaun Murison, IG senior market analyst
“Woolworths appears to be pursuing a multifaceted approach, emphasising digital transformation while rationalising physical retail space,” said IG senior market analyst Shaun Murison. “The company is clearly focusing on its core strengths in food and beauty while working to restructure underperforming segments.”
Murison said priorities for the group include addressing operational issues, managing continued pressure on apparel segments, further expanding digital capabilities and successfully completing the Country Road restructuring before the end of financial year 2025.
“The company’s ability to execute these initiatives while maintaining momentum in its successful segments will be crucial for performance,” Murison said.
Online sales increased by 37.2%, contributing 6.4% of food sales, driven by the on-demand offering — Woolies Dash, which delivered sales growth of 49.2% for the period.
The beauty business sustained its momentum, delivering growth of 17.3% over the period.
The Woolworths financial services book decreased by 3.7% year on year but increased by 1% when excluding the sale of part of the legal book.
In Australia, the effect of a weaker top line, inflated import costs driven by a weaker Australian dollar and the business’s higher cost base since the sale of the David Jones department store business hit performance,
Despite selling David Jones in 2023, Woolworths retained the flagship property asset in Melbourne as an investment asset that was leased back to David Jones on market-related terms.
In December, the group sold the property for A$223.5m and recognised the profit on disposal, which means earnings per share for the period are expected to be between 18% and 23% (239.4c-249.6c) higher than a year ago.
Update: January 28 2025
This story has additional information and analyst comment
With Tiisetso Motsoeneng
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