Country Road Group (CRG) delivered disappointing results, with declining market share in Australia. We analyse CRG’s performance over the past 20 years and note three distinct phases of its development. The Witchery acquisition in FY13 was transformative, as the enhanced scale boosted margins. Its integration with David Jones (DJ) from FY16 coincided with a decline in margins, and while the businesses are now split, we do not think CRG can reclaim its pre-DJ margins in the near term, as it is saddled with a higher cost base brought about by excess capacity.
We are concerned about the risks to CRG’s culture following recent developments. The events may have hurt staff morale and the resignation of some key staff is worrying. A seeming predilection to recruit alumni from Levi Strauss risks a culture conflict, in our view. We also question whether the experience gained at Levi is suitable for CRG, as it has a strong focus on denim and offers virtually no knitwear or formal wear, which are key categories in CRG.
WHL’s Fashion, Beauty and Home (FBH) division lost market share in FY24, and these losses accelerated in 2H24. We believe there may be a weakness in its core ranges, which are traditionally over-indexed relative to the market in the second half. Its stable GPM is surprising, as we would expect the low sales growth and late stock arrivals in 1H24 to have resulted in a buildup of stock. We think there may be a risk of higher markdowns in FY25.
The Food division is maintaining its market position despite the aggressive rollout of SHP’s Checkers food stores. WHL Food trading densities are more than double that of Checkers, which is a key differentiator of WHL Food’s business model. Management believes they can increase sales to existing customers, but we are concerned this may result in overtraded stores.