WHL delivered strong results for 1H23, with GPM improvements across its apparel businesses. FBH continued its recovery, with improved trading densities following the space rationalisation over the past three years. FBH reached its GPM target of 48% on the back of much lower markdowns, but we think further reductions could be difficult, and the growth of branded product sales could limit GPM expansion. We also believe that, compared to its apparel competitors, FBH is disadvantaged by being part of an integrated food and clothing WHL store, as it is allocated a share of the cost of the expensive diesel-generated power needed to support the food business. Management disputes this view, arguing it is an advantage as all stores remain fully operational during loadshedding.
Although the food business’ topline growth is improving, it still lags SHP’s Checkers by a significant margin. We think changing shopping patterns could explain WHL Food’s relatively slower growth as consumers are reducing the basket sizes of perishables and may prefer to buy longer-life, ambient goods better able to endure persistent loadshedding. WHL Food’s higher exposure to perishable products could make it more vulnerable to the changes in shopping patterns.
CRG’s latest sales indicate a 4.8% CAGR since the pre-pandemic 1H20 period, and may now have normalised. The space optimisation resulted in higher trading densities, which increased at a 6.2% CAGR since 1H20. However, we are concerned that around 22% of CRG’s total space is brand concessions in David Jones stores, which may be at risk as the new owners could allocate the space to other brands that yield a better return. Management considers this a minimal risk as the current agreement is mutually beneficial to both companies.
We consider the loadshedding implications on WHL SA, including the likely costs if outages intensify to Stage 8.