Woolworths in Crisis: Food Division Squeezed as Clothing Business Continues to Struggle

Woolworths, once a dominant force in South African retail, is facing mounting challenges. Its latest financial results reveal a troubling trend—while its high-end food division remains a bright spot, its fashion, beauty, and home (FBH) business continues to drag down performance.

Fashion Division in Freefall

The FBH segment reported a meager 2% turnover growth for the 26 weeks ending December 2024, far below inflation. Woolworths blamed delayed supplier deliveries and product flow disruptions, but the reality is deeper—this division has been underperforming for years.

The retailer’s international ventures have only worsened its woes. The disastrous R29 billion acquisition of David Jones in 2015, funded entirely by debt, ended in a massive loss when sold for just R1.6 billion. Country Road, another Australian investment, is also struggling, forcing Woolworths to restructure its operations.

Woolworths Food: Strong but Under Threat

The food division remains the company’s saving grace, with an 11.4% turnover increase and improved gross margins. Online sales via Woolies Dash surged by 49.2%, showing strong digital demand.

However, a five-year analysis reveals concerning trends:

• Revenue growth (7.2% avg.) is solid but slowing.
• Profit margins are shrinking, from 7.5% to 6.3%.
• Expenses are outpacing revenue, with profits growing just 25% compared to 49% revenue growth.

Competition Closing In

Woolworths Food no longer enjoys a near-monopoly in the premium grocery market. Rivals are stepping up:

• Checkers Sixty60 is eating into market share.
• Spar Gourmet will launch 30-40 high-end stores by late 2025, featuring Vida e Caffè partnerships.
• Pick n Pay is revamping stores with premium offerings like artisan bakeries and sushi bars.

Analysts Sound the Alarm

Investors are losing confidence, with Woolworths’ share price down 23% in six months. Analysts highlight key concerns:

• David Shapiro (Sasfin Securities): “Woolworths has deep-rooted problems.”
• Grant Nader (Benguela Global): “Country Road is underperforming peers in Australia.”
• Ricus Reeders (PSG Wealth): “Until clothing turns around, Woolworths isn’t a buy.”

What’s Next for Woolworths?

With management under scrutiny and competition intensifying, Woolworths must act fast. Shareholders are advised to remain cautious—some analysts even suggest shifting investments to rivals like Pepkor or Mr Price.

Can Woolworths reinvent itself, or will its struggles deepen? The next financial updates will be critical.

{Source BusinessTech}

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