All is not well at Woolworths

DOWN UNDER: DAVID JONES CEO RESIGNS DAYS BEFORE TWO NONEXECUTIVE DIRECTORS

Trouble in Australia, but there are bigger problems in SA where sales dropped by 2.4% in 2018.

There is seemingly a storm brewing at Woolworths’ Australian operations. On Thursday last week, Woolies announced the resignation of David Thomas, chief executive of brand David Jones.

It said simply he’d “resigned for personal reasons”.

Thomas was promoted to head up David Jones from September 2017 after CEO John Dixon was elevated to the newly created position of Australasia CEO.

Less than nine months later this unravelled, with Dixon’s position “discontinued” following a “strategic cost review”.

Since May 2018, Thomas and Country Road Group CEO Scott Fyfe reported directly to Woolworths group CEO Ian Moir.

Now, Moir will “work directly with the David Jones management team in the interim”.

Two working days later, Woolworths announced the unexpected, immediate departure of Australian independent non-executive directors Gail Kelly and Patrick Allaway.

This is highly unusual. Nonexecutive directors don’t suddenly resign, certainly not in concert.

Woolworths no longer has any Australian directors on its board besides Moir. It’s likely these events aren’t unrelated.

Shareholders are surely wondering if there was a board-level battle.

Was there such a severe disagreement about governance, or strategy, or an appointment (or forcing out) that both directors felt compelled to resign? Was it something else?

It’s clear all is not well at Woolworths Holdings Limited (WHL) Australia.

For shareholders, having Moir spend more time running David Jones is probably not desired.

The market perception is that the David Jones turnaround will labour on forever. Everyone accepts Woolworths overpaid for it.

However, comparable store sales at David Jones are up after a tough 2017. In the six months to last June, sales increased 2.7% at existing stores. In the 26 weeks to December 23, comparable sales were up 0.9%.

But there are far bigger problems in SA.

For the year to June 24 2018, Woolworths Fashion, Beauty and Home reported comparable store sales down 4.1%. Before Christmas, this had “recovered” to a 2.4% drop.

The group has admitted to “poor execution in clothing”, particularly in women’s wear.

It rolled out, then rapidly rolled back the David Jones private label in SA.

The move to replace what you’d recognise as the Woolworths’ “classic” range fell flat.

Add to this a number of high-profile mistakes – the latest a second accusation of product copying (a type of latte) following the recent Ubuntu Baba baby carrier saga and a tone-deaf Valentine’s Day marketing campaign – and it’s clear there are big problems in the core business.

If Moir’s food strategy hadn’t paid off handsomely, he might have been out a while ago.

Hilton Tarrant works at YFM.