"Woolworths Cautions on Meeting Fashion Profit Margin Target"

Woolworths has issued a warning that it may not reach its fashion profit margin target as planned. The company cites various challenges impacting its ability to meet the financial goal on time. This caution highlights potential difficulties in the fashion sector and their implications for Woolworths’ overall profitability and market performance.

Woolworths’ CEO announced on Wednesday that challenges such as product shortages and rising living costs have delayed the company's timeline for achieving its fashion business profit margin target.

The retailer, which reported a 34.6% decrease in annual profit before tax to 3.5 billion rand, stated that sales and profit in its South African fashion, beauty, and home sectors were adversely affected by a weak macroeconomic environment, inadequate product availability, and increased competition from online retailers.

Woolworths had initially aimed to achieve an adjusted EBIT margin of over 14% for its fashion, beauty, and home business by the financial year 2026. Although the margin target remains unchanged, the timeline has shifted.

CEO Roy Bagattini explained to investors that the various headwinds over the past year have affected the anticipated achievement date. He noted that unless there is a significant economic improvement, reaching the target this year or even next is unlikely. However, Bagattini remains optimistic about meeting the target by the financial year 2027.

The fashion sector also faced challenges from a late start to winter, resulting in a 0.4% decrease in turnover and concession sales on a comparable basis, and a 9.9% drop in adjusted operating profit to 1.8 billion rand ($101 million). Consequently, the adjusted EBIT margin fell to 12%, down by 1.2 percentage points.

Despite these setbacks, Bagattini observed continued improvement in product performance in key categories as part of the fashion unit's turnaround strategy.

Additionally, the EBIT margin target for Woolworths’ Country Road Group in Australia and New Zealand has been lowered to over 10% from the previous target of greater than 12%. This revision reflects increased costs following the sale of the David Jones department chain, which previously shared service infrastructure.

The group is focusing on growth through new store formats, including a standalone beauty store and a beauty manufacturing facility dedicated to research, development, and innovation.

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Source: Reuters‍