Retail

Woolworths feels the pain

Woolworths expects a significant drop in profitability for the first half of its 2025 financial year, as Australia’s tough operating environment and apparel business pressured the retailer’s margins.

Woolworths reported a 5.7% increase in group turnover and concession sales for the 26 weeks ended 29 December 2024.

This reflects continued strong sales growth from the retailer’s leading food business, with lower contributions from its apparel businesses in South Africa, Australia and New Zealand. 

Woolworths explained that its Fashion, Beauty and Home and Country Road businesses are “in the throes of significant transformation”, which negatively impacted the group’s performance. 

The retailer’s South African segment reported turnover growth of 9.1% for the period.

This was largely due to the contribution from its Food business, which showed 11.4% growth, with strong online sales (up 37.2%) driven by its Woolies Dash service.

Woolies Dash delivered sales growth of 49.2% for the period.

However, this impressive growth was offset by the retailer’s Fashion, Beauty and Home business. In South Africa, this business saw turnover increase by only 2.7% on a comparable-store basis.

Woolworths explained that sales growth in the last eight weeks of the period was constrained to 0.9%.

This is due to temporary delays in product flow arising from late supplier deliveries, as well as processes and systems changes in its distribution centre-related to its value chain transformation.

Woolworths’ Australian business, the Country Road Group (CRG), did not fare much better.

Following the sale of David Jones in the 2023 financial year, CRG is currently undergoing a significant restructuring to reconfigure its operating model and reset its structural economics as a standalone business. 

Woolworths said the restructuring is on track to be completed ahead of the 2025 financial year-end.

However, it explained this accelerated timeframe has necessitated “increased internal focus” during the period. 

“In addition, the apparel trading environment in Australia and New Zealand remains heavily promotional, driven by price-sensitive consumers,” it said. 

Therefore, CRG’s sales declined by 6.2% for the period and by 7.8% on a comparable-store basis. 

Trading space decreased by 2.4%, while online sales contributed 27.1% of total sales for the period, up from 26.8% in the prior period. 

“The impact of a weaker topline, inflated import costs driven by a weaker Australian dollar and the business’ higher cost base post the David Jones separation resulted in negative operational leverage for this business,” the retailer said.

Woolworths’ struggles in its Australian business had a devastating effect on the company’s overall financial performance.

The company’s headline earnings per share – which measures the performance of its primary operations – are expected to decline by 22% and 27% for this period.

Its earnings per share are expected to increase by around 20%, but this is due to a once-off profit it recognised related to its disposal of David Jones.

While David Jones was sold in 2023, Woolworths retained the flagship property asset situated in Melbourne, Australia. 

The property was held as an investment asset and leased back to David Jones on market-related terms. 

However, in December 2024, Woolworths successfully disposed of the property for A$223.5 million (around R2.63 billion) and recognised the profit on disposal.

Therefore, the company’s earnings per share are expected to be between 18% and 23% higher.

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