Woolworths’ clothing businesses, FBH and CRG, continue to struggle and reported sharp drops in GP margin in 1H25. FBH space rationalisation has improved nominal trading densities but also contributed to market share losses. Management will now focus on improving availability, but we are sceptical that this will be the catalyst for improved performance. We find that its lower-margin categories – beauty, concessions and online – now account for 18% of FBH sales; with their stronger growth rates, they are likely to continue to negatively impact its margin mix. We estimate that FBH’s stock may have surged by 46% y-y in 1H25, but management contends that there are no material markdown risks in 2H25.
The solid performance of the Food division shows that it can defend its premium market despite the aggressive rollout of rival Checkers stores. We think its EBIT margin is likely to be maintained in the 6.5%-7.0% range, but WHL is becoming increasingly reliant on the Food division to deliver decent results.
CRG has shown no top-line growth over the last seven years, but its 18% reduction in space over this period improved trading densities. With WHL claiming double-digit growth at Trenery, and Country Road flat, we estimate that the other brands – Witchery, Mimco and Politix – may have shrunk by 20% y-y in 1H25. This significant deterioration raises the risk of impairment of these brands, which management will assess in 2H25. We note the key assumptions used in the FY24 impairment calculations include sales growth rates between 3.0% and 19.2% and gross margins between 58.3% and 63.5%. Given the contraction in sales and margin decline, we think the R2bn in intangibles related to Witchery and Politix could be at risk of impairment.