Woolworths warns it may not hit fashion profit margin target on time
FBH EBIT margin target maintained at over 14%
Macro headwinds, poor product availability hit profit
FY profit before tax slumps 34.6%
New store formats to drive top line growth
Recasts with EBIT margin target
By Nqobile Dludla
JOHANNESBURG, Sept 4 (Reuters) -Headwinds including product availability and higher living costs have pushed back when Woolworths' fashion business will reach its profit margin target, the retailer's CEO said on Wednesday.
Woolworths WHLJ.J, which reported a fall in annual profit before tax of 34.6% to 3.5 billion rand, said in the year to June 30, sales and profit of its South African fashion, beauty and home business was hit by a weak macro-economic environment, poor product availability and competition from online rivals.
The South African upmarket fashion and food retailer had set an adjusted earnings before interest, tax, depreciation and amortisation (EBIT) margin target of more than 14% for the fashion, beauty and home business over the medium-term.
This was due to be achieved by its financial year 2026.
While the margin goal has not changed, the timing has.
"The various headwinds we've experienced this past year have impacted the timing of when we expect to reach our target," Woolworths' CEO Roy Bagattini told investors.
"Unless we see a rapid rebound in macros, it's unlikely we reach it this year or even next," he said, adding he was "pretty confident" of hitting its targets by financial year 2027.
The fashion business was also hit by the late onset of winter, with turnover and concession sales down by 0.4% on a comparable basis, while adjusted operating profit decreased by 9.9% to 1.8 billion rand ($101 million).
This resulted in an adjusted EBIT margin of 12%, a drop of 1.2 percentage points.
Nevertheless, Bagattini said he was seeing continued improvements in product resonance in "must win" product categories, as part of the fashion unit's turnaround plan.
Woolworths' EBIT margin target for its Country Road Group, which operates in Australia and New Zealand, was revised downward to over 10% from greater than 12% as it now absorbs a lot more costs since the sale of department chain David Jones, which it shared services infrastructure with, Bagattini said.
The group is investing in new format stores to drive growth, with a standalone beauty store and beauty manufacturing facility to drive research, development and innovation.
($1 = 17.9074 rand)
Reporting by Nqobile Dludla; Editing by Tom Hogue, Varun H K and Alexander Smith
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