(Bloomberg) — Woolworths Holdings Ltd. gross profit margins narrowed after efforts to fix its South African clothing unit failed to fully materialize.
The seller of both fashion and designer clothing has struggled for years to get its mix in South Africa right. It’s first-half profit margin for the unit dropped by 170 basis points to 46.3%, it reported. That’s even as it’s selling more apparel at full price.
“This business has not had investment for decades,” partly because of the distraction of trying to fix and then sell its David Jones unit in Australia, Chief Executive Officer Roy Bagattini said in an interview on Wednesday. “We’re getting a little bit more right, but we’re still getting too much wrong.”
Bagattini will need to resolve issues such as shoppers failing to find the correct clothing size to benefit from a revival in consumer demand in Africa’s most-industrialized economy. Rival retailers including Shoprite Holdings Ltd. have reported higher profit as the nation’s economy recovers.
The company’s shares fell as much as 1.8% in early Johannesburg trading and were 1.4% lower by 9:29 a.m. in Johannesburg. They dropped 14% in 2024. That compares to a 37% increase in the nine-member FTSE/JSE Retailers Index last year.
Woolworths also faced a setback during the key December festive season in its new systems that transport stock from its suppliers and to stores.
“It’s very unfortunate and hugely frustrating for me and for the team, but it’s now resolved and behind us and we we’re back to where we need to be,” Bagattini said.
Still, slowing inflation is boosting volumes for the Cape Town-based retailer and the most extreme cost pressures in food, which accounts for more than half of revenue, are easing. Food sales helped boost total revenue by 5.7% to 40.3 billion rand ($2.2 billion).
The sale of its Bourke Street store in Australia “made a very neat profit,” of 792 million rand and while Woolworths won’t use that to declare a special dividend, it will use it to invest back in the business and share buybacks remain a consideration, Bagattini said.
(Updates with CEO comment from thirdparagraph.)
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