Double blow for Woolworths

Woolworths’ Food business continues to perform well, but its Fashion Beauty Home (FBH) and Australian-based Country Road Group (CRG) seriously hurt the group.

The group’s results for the first half of the 2025 financial year showed that the strong performance of Woolworths Food was offset by lower contributions from its apparel businesses.

It said that the South African FBH and Australian CRG are in the throes of a huge transformation.

In South Africa, discretionary spending remains constrained. However, sentiment is improving due to moderating inflation, easing interest rates, and suspending load shedding.

Despite improved consumer sentiment and the uplift in retail sector sales, high interest rates and elevated living costs continue to weigh on consumer behaviour in Australia.

Nevertheless, group turnover and concession sales for the period increased by 5.7% and 6.2%, respectively, on a constant currency basis.

The group said that softer-than-expected topline growth in its apparel business, as well as pressure on gross profit margins and the expenditure on its transformation initiatives, hurt profitability, especially CRG.

However, the group did receive a boost from part of the sale of David Jones. Despite selling David Jones in 2023, Woolworths retained the flagship David Jones property in Melbourne.

The group subsequently sold the property for A$223.5 million (R2.6 billion), recognising a profit on the disposal. This increased earnings per share by 20.9% to 245.4 cents per share.

Headline earnings per share dropped by 24% to 152.8 cents per share, with the group reducing its interim dividend by 27.7% to 107.0 cents per share:

• Turnover and concession sales: R40.3 billion (+5.7%)
• Turnover: R39.6 billion (+5.4%)
• Profit before tax: R2.6 billion (+6.3%)
• Adjusted profit before tax: R2.0 billion (-20.6%)
• Adjusted diluted headline earnings per share: 169.1cps (-19.4%)
• Headline earnings per share: 152.8cps (-24.8%)
• Earnings per share: 245.4cps (+20.9% )
• Interim dividend per share: 107.0cps (-27.7%)

South Africa

The South African business grew turnover and concession sales by 9.1%. While the Food Business delivered a strong adjusted EBIT, this was offset by FBH’s lower contribution.

The Food business also delivered market-leading turnover and concession sales growth of 11.4% and 7.3%, respectively, on a comparable-store basis.

This was driven by positive underlying volume growth partly due to improved availability. When excluding Absolute Pets, Food Sales increased by 9.0%, leading to market share gains.

Woolies Dash also saw sales growth of 49.2% over the period, with total online sales jumping by 37.2% and contributing 6.4% of Food sales.

The gross profit margin jumped by 30 basis points to 24.9% because of more targeted and effective promotions.

Operating expenses from investments in growth initiatives, higher inflation and the inclusion of Absolute Pets led to expense growth of 15.2%.

Although the group’s FBH business continued to make progress on its strategic priorities, performance over the period was impacted by a temporary setback in product flow due to new processes at its Distribution Centre.

Coupled with late supplier deliveries, this reduced product availability across most of its store base during the peak festive season.

FBH turnover and concession sales increased by 2.5% and 2.7% on a comparable-store basis over the period.

A bright spark has been the Beauty business, which has delivered growth of 17.3% over the period. This is quickly becoming a central part of the group’s growth strategy.

However, the issues facing the FBH business meant that the gross profit margin declined by 170 basis points to 46.3%. The adjusted operating profit also declined by 17.7% to R763 million.

The Woolworths Financial Services (WFS) book also decreased by 3.7% year over year to the end of December 2024, excluding the sale of part of the legal book.

The annualised impairment rate for the six months ended 31 December 2024 also improved from 6.3% in the prior period to 5.4%.

WFS delivered an underlying growth of 6.6% in profit after tax (excluding IFRS 17 transition adjustment in the prior period) and a return on equity of 22.3%.

Country Road

CRG is undergoing a significant restructuring to reconfigure its operating model and reset its structural economics as a standalone business.

The restructure is being done in an accelerated timeframe, as sales declined by 6.2% over the period and by 7.8% on a comparable-store basis.

This is due to a constrained apparel trading environment in Australia and New Zealand, characterised by reduced footfall and intense promotional activity.

“Higher promotional activity to manage inventory levels and the impact of a weaker Australian Dollar on input costs resulted in a 320bps decrease in the gross profit margin to 58.9%.”

Overall, the adjusted operating profit of A$14.2 million showed a decrease of 71.7%, returning an operating profit margin of 2.6%.