Warning to avoid Woolworths

Prominent analysts warned South African investors to avoid Woolworths as it failed to resolve its clothing business problems and is facing increasing competition in its food division.

Woolworths recently released its results for the 26 weeks ended 29 December 2024, which revealed a mixed performance for the first half of its 2025 financial year.

The retailer’s food segment performed well, reporting 11.4% turnover growth and an improved gross profit margin of 24.9%.

The retailer’s on-demand grocery delivery service, Woolies Dash, saw sales increase by 49.2% and total online food sales rise by 37.2%.

However, the group’s Fashion, Beauty, and Home (FBH) segment performed poorly, with a reported turnover growth of only 2%. This is well below inflation.

Woolworths made excuses for its poor performance in this segment, saying a temporary setback in product flow and late supplier deliveries impacted it.

It claimed this temporary setback reduced product availability in many stores during the peak festive season.

Despite the years-long problem with the fashion, beauty, and home division, Woolworths’ management claimed it continues to make steady progress against its strategic priorities.

Woolworths CEO Roy Bagattini, appointed in February 2020, was expected to turn the fashion business around.

Despite positive initial signs, this business unit continued to struggle and remains a drag on the Woolworths business.

Woolworths’ international expansion into Australia and New Zealand also had dire consequences for the retailer.

In 2015, it invested around R29 billion in David Jones, entirely funded by debt. However, it did not work as planned.

The investment was a colossal failure. After years of disappointing performances, Woolworths sold David Jones for around R1.6 billion.

Even after the David Jones business is sold, the Country Road Group continues to struggle and weigh on Woolworths’ results.

Woolworths said the Country Road Group is currently undergoing a significant restructuring to reconfigure its operating model and reset its structural economics.

The problems have resulted in Woolworths’ share price declining 22% over the last six months, and 15% year-to-date.

Analysts warn investors to avoid Woolworths

Woolworths’ sluggish share price performance over the last four years raises the question whether a turnaround is in store, which would justify investing in the retailer.

Ricus Reeders, a portfolio manager at PSG Wealth, told Business Day TV Woolworths had been outperforming its peers in the retail sector.

They have been promising for a very long time to get their clothing business organised. This did not happen,” he said.

The latest set of results showed that the clothing business is still struggling. “This is why Woolworths is underperforming,” he said.

Reeders said he does not see any reason to invest in Woolworths until there is clear evidence that the management team has turned the clothing business around.

He added that while Woolworths Food is performing well, it is facing increased competition from Checkers.

He advised Woolworths shareholders to consider selling their stock and look at a company like Pepkor or Mr Price as an alternative.

Zwelakhe Mnguni from Benguela Fund Managers also warned investors to be very cautious about investing in Woolworths.

He highlighted that Woolworth’s South African and Australian clothing businesses are underperforming.

Mnguni said he would like to see a change in management or the disposal of the clothing business before investing in the retailer.

“I cannot see a way for Woolworths out of this problem. It has been a perennial underperformer,” he said.