Woolworths (WHL) – Weighed Down Under

We argue that in view of the significance of private label in the initial investment case for the David Jones acquisition, and management’s admission that the private label performance was disappointing, a revised investment case for the DJ acquisition should be presented. We believe an updated investment case will be key in assessing the appropriateness of the carrying value of the ZAR8.8bn goodwill arising from the acquisition. We find that the latest turnover growth and GPM achieved by David Jones were well below the assumptions used in the FY16 impairment test