Woolworths to fix fashion business
Group declares final dividend of 66c as profit doubles
Clothing and food retailer Woolworths has prioritised fixing the financial health of its SA fashion business rather than chasing increased market share. CEO Roy Bagattini says it will take a few clothing seasons for this to yield results.
Clothing and food retailer Woolworths has made it a priority to fix the financial health of its SA fashion business rather than chase greater market share.
CEO Roy Bagattini says it will take a few clothing seasons for this to yield results. On Thursday, the group posted results for the year to June when it doubled its full-year profit, off the low base of 2020 that was skewed by the hard lockdown restrictions and resulting reduced discretionary spending.
Woolworths declared a final dividend of 66c per share, as headline earnings per share (HEPS), a main profit measure in SA, surged 212.5% to 374.4c.
CFO Reeza Isaacs said performance in its SA clothing business is still not where “it wants to be”. Compared with 2019, which excludes 2020’s hard lockdown, revenue from the fashion and beauty business fell from R13.8bn to R12.8bn and profit in this division before tax fell 35%, from R1.6bn to R1bn.
Turnover in the clothing business compared with 2020’s, rose 3.5%, and was up 4.2% on a comparable store basis. Bagattini, who joined in early 2020, has been working to fix the clothing business. He appointed Manie Maritz, formerly with TFG, as head of the division to drive the turnaround.
Bagattini said it could take “a couple of seasons” to get the financial health of the fashion business on track, but the retailer expected some of its initiatives to pay off when it releases its spring and summer ranges.
Bagattini told investors the retailer was not chasing increased market share, but planned to grow market share in certain categories that are popular at Woolworths. These include women’s underwear, babies’ and children’s clothing.
Bagattini said the group was working to understand its customer base better as it had not understood its fashion target market and had “overproliferated” the stores with too many clothing and product lines.
Woolworths reduced formal wear in the past year, shuttered two clothing lines and sharpened its focus on athleisure, or trendy, casual sportswear.
The SA clothing business reduced the size of its stores more than 6% and continues to focus on lowering trading density, which will affect strained landlords. Woolworths is also investing in supply chain management logistics and manufacturing in its clothing businesses to “get the right product at the right time to right place”, said Bagattini.
“We have not invested in supply chains to the extent we should have,” he said, referring to the fashion business.
Bagattini said he streamlined the management structure in the clothing division and made it leaner after leading efforts to simplify processes in the businesses. The retailer continues to focus on “speed to market”, which refers to producing apparel within 30 or 40 days of design, allowing it to respond better to consumer trends.
Woolworths aims to increase local manufacturing from about 30% of its goods to 50% within a few years. This is something the Minister of Trade and Industry Ebrahim Patel has pushed for with the 2019 Retail Master Plan, which requires local clothing chains to commit to increased local production.
In the food business, the star of its portfolio, Bagattini said he was aware of growing competition from other retailers and Woolworths didn’t take its preeminence for granted. Food delivery, an area where retailers
worldwide struggle to turn a profit, meant a reduction in profit margins and would need to be offset with economies of scale, he said.
However, Woolworths is facing competition in this segment, where it has lagged competitors.
Checkers was the first to launch an on-demand food delivery app that aims to deliver groceries within an hour. Woolworths will soon launch a single app that includes multiple options for consumers: on demand delivery, choosing a scheduled delivery time, and click and collect. It will be the first retailer to put all the options in one place. In Australia, Woolworths sold two properties in 2020 to pay off the overwhelming debt that threatened the survival of both Country Road and the David Jones chain.
This led to talk of it selling David Jones, the Australian retailer that lost it more than R12bn in writedowns.
“We’ll assess our options around David Jones at the right point in time, but now [is not] that point,” Bagattini said. “We’ve always said we’re not wedded to a particular outcome here.”
Woolworths was up 1.81% at R60.07 on Thursday.