Woolworths CEO Roy Bagattini stood firm in his belief that the clothing unit is on course to deliver higher returns, saying the half-year’s underperformance was a temporary blip stemming from a sweeping overhaul of the division’s supply chain.
Bagattini was speaking to Business Day shortly after the high-end retailer issued its financial results, which showed it had suffered a drop in the apparel division at home and Australia overshadowed a strong showing for its food division.
“We actually had a real problem, a real challenge in our distribution centre, which is self-inflicted because we’re changing how we manage inventory and flow the inventory into the stores,” said Bagattini.
“That created a very specific problem for us but that’s being resolved, so we’re back on track now and we’re starting to build momentum. I do feel quite confident, actually, about the delivery of our margin here in the fashion division.”
Since he took the helm at the R50bn-plus company, Bagattini has been preoccupied with the food and beauty division, seeking to turn it around and reposition it to appeal to a younger and more diverse customer base.
He has closed unprofitable stores, lifted the proportion of products that leave the stores at full price from at least 40% to 80%, rather than being marked down.
But the strategy came under a sharper focus in the latest financial results after sales hardly grew in the six months to end-December, offsetting a robust showing from the food division.
The 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.
Still, Bagattini is confident that the apparel business remained an integral part of Woolworths, pointing to the more than doubling in profit margins, or the proportion of revenue that remains after paying expenses — to about 14% in the latest earnings report.
“Some would love to say, ‘why do you have to have that business? Why don’t you just have the food business?’ but they wouldn’t ask that question [if] the fashion business performs, and I think the fashion business will perform,” he said.
Woolworths has pumped R1.5bn into the value chain — a network of back-end activities such as sourcing, distribution and retailing — to replace an outdated, rigid one that allocated and shipped products to stores based on forecasts rather than actual demand. The new hi-tech system promises to pull products to the stores based on real-time demand.
“We have a very clear plan. Our challenge is getting our product into our stores consistently, and that’s why we’re making this investment behind the operating model to give us the wherewithal,” he said.
“Our old systems were very constraining and hampered us significantly. But historically, we never invested in this business, we’re now investing in this business to build that capability, and that is what will make the difference going forward.”
Woolworths, which vies with Shoprite, Pick n Pay, Spar and Massmart, reported a 25% drop to 152.8c in headline earnings per share, which flowed from R40.3bn in turnover that rose by 5.7%.
An interim dividend of 107c per share was declared, 27.7% lower than a year ago.
The group’s food business delivered turnover and concession sales growth of 11.4% and 7.3% on a comparable-store basis. Excluding Absolute Pets, which was acquired in the fourth quarter of the previous financial year, food sales increased by 9%, supported by continued market share gains.
Online sales
Woolies Dash, its on-demand offering, delivered sales growth of 49.2% for the period, with total online sales increasing by 37.2% and contributing 6.4% of food sales.
After the sale of David Jones in 2023 and the successful separation of CRG from David Jones in 2024, CRG is undergoing a significant restructure to reconfigure its operating model and reset its structural economics as a stand-alone business. This restructuring is being implemented in an accelerated time frame.
The apparel trading environment in Australia and New Zealand remains significantly constrained, characterised by reduced footfall and spend, and intense promotional activity.
Within this context, sales declined by 6.2% for the period and by 7.8% on a comparable-store basis.
Despite signs of improving consumer confidence in SA and Australia, recent positions taken by the US regarding global trade relations had elevated the forecast risk regarding the macroeconomic outlook for the current year, particularly in the case of SA, Woolworths said.
In Australia the retail sector was likely to remain highly promotional until the pressure of living costs eased.
During the second half, Woolworths would reassess the carrying value of the assets of its underperforming brands within the Country Road Group, it said.
Update: March 5 2025
This story has been updated with new information and comment.
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