Is Woolworths in trouble? CEO said financial performance ‘disappointing’

Retailer Woolworths continues to invest in its apparel business, hoping to bring it back to life.

The Woolworths apparel business includes Fashion Beauty Home (FBH) and Country Road Group (CRG).

The two have struggled to contribute significantly to the group’s growth, while Woolworths Food remains the group’s “engine room”.

Woolworths’ performance

The retailer’s unaudited interim group results for the 26 weeks ended 29 December 2024 were released on Wednesday. They show strong performance from Woolworths Food, while the apparel business made lower contributions.

Roy Bagattini, Woolworths Holdings CEO, said the group’s overall financial performance was “disappointing”.

While delivering the group’s results virtually, he said discretionary spending remains constrained in South Africa. However, consumer sentiment is improving, supported by moderating inflation, easing interest rates, and the suspension of load shedding.

ALSO READ: Woolworths Food remains the group’s star

Australian consumers spending

He said in Australia, there has been improved consumer sentiment and an uplift in retail sector sales, buoyed by Black Friday, the sustained effect of high interest rates and elevated living costs continues to weigh on consumer behaviour and discretionary spend, resulting in elevated promotional intensity, and significantly reduced profitability at a sector level.

“Taking the above into consideration, Group turnover and concession sales for the current period increased by 5.7% and by 6.2% on a constant currency basis against the prior comparative 26-week period.”

Group records decline

The apparel businesses’ low contribution, the pressure on gross profit margins, and increased operating expenditures negatively impacted profitability during this period.

“As a result, the group’s adjusted earnings before interest and tax (aEBIT) declined by 13.7% on the prior period, to R2.8 billion.

“Group adjusted earnings before interest and tax, depreciation and amortisation (aEBITDA) decreased by a lesser 6.4% to R4.5 billion, reflecting the impact of the investment in our various strategic and growth-enabling initiatives.”

aEBIT and aEBITDA are financial metrics that help investors and analysts understand a company’s true profitability by excluding non-recurring items and focusing on core business operations.

However, aEBITDA is a more detailed and comprehensive metric that includes the effects of depreciation and amortisation, while aEBIT provides a more general picture of a company’s operating profitability.

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Woolworths Food

The group’s results detail that the South African business grew turnover and concession sales by 9.1%.

“Our food business delivered market-leading turnover and concession sales growth of 11.4% and 7.3% on a comparable-store basis.

“Woolies Dash delivered sales growth of 49.2% for the period, with total online sales increasing by 37.2% and contributing 6.4% of Food sales.”

Woolworths Fashion, Beauty and Home

Woolworths’ performance in the fashion, beauty, and home businesses was impacted by a temporary setback in product flow arising from implementing new processes and systems within the retailer’s distribution centre (DC) transformation.

Fashion, Beauty, and Home turnover and concession sales increased by 2.5% and 2.7% on a comparable-store basis over the period, with a price movement of 1.2%.

Fashion also achieved positive underlying volume growth, with deflation of 0.8%.

Beauty grows

The beauty business has sustained momentum, delivering growth of 17.3% over the period and further establishing Woolies as the beauty destination in South Africa.

“In line with our strategy to rationalise unproductive space, net trading space decreased by 2.1% relative to the prior period, whilst online sales increased by 25.2% and contributed 6.6% of FBH sales.

“Expense growth was well managed at 4.5%, notwithstanding the increased investment and associated costs of strategic initiatives.

“Adjusted operating profit declined by 17.7% to R763 million, resulting in an operating margin of 9.8% for the current period.”

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