Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Group sales increased by over 4% despite challenging macroeconomic conditions.
- The food business demonstrated strength and resilience, achieving the strongest organic growth in the sector.
- The acquisition of Absolute Pets has been margin and earnings accretive.
- Woolworths Financial Services saw a strong recovery in post-tax profits and maintains the healthiest impairment ratio in the sector.
- The company has a healthy balance sheet with improved cash generation and a net debt-to-EBITDA ratio of 1.45 times.
Negative Points
- EBITDA decreased by 14% and adjusted diluted HEPS declined by 12% from last year's record highs.
- Fashion, beauty, and home sales growth was below expectations due to poor product availability and external headwinds.
- The Country Road Group in Australia faced significant challenges, resulting in a double-digit decline in footfall and a 66% drop in EBIT contribution.
- Group stranded costs of ZAR126 million from the David Jones separation could not be absorbed by other businesses.
- The macroeconomic environment, particularly in Australia, remains challenging with high living costs and low consumer confidence.
Q & A Highlights
Q: Your FBH margin went backwards in FY24. What gives you the confidence you can still achieve greater than 14% margin? And can you clarify the exact timing of this?
A: Roy Bagattini, Group Chief Executive Officer, Executive Director: There are several drivers behind this, both from a top-line and operating cost perspective. We are seeing continued improvement in product resonance, particularly in our must-win categories. Improving product availability is a significant opportunity for us. Additionally, we are achieving input margin gains through our value chain transformation. We expect to achieve our targets by FY27, with margin gains coming through strongly from FY26 and FY27.
Q: You've lifted your FBH GP margin by almost 5% over the past few years, how much more can we expect and what will drive that?
A: Roy Bagattini, Group Chief Executive Officer, Executive Director: We don't expect further GP margin gains from here, partly because we plan to reinvest in our product to drive stronger top-line growth. Additionally, the strong growth in beauty, which is a lower margin category, will impact overall margins. EBIT margin expansion will be driven by positive operating leverage rather than GP margin.
Q: Can you please talk to the trading dynamics impacting the 1.3% sales growth for FBH in the first eight weeks?
A: Zaid Manjra, Group Finance Director, Executive Director: Our full-price sales for the first eight weeks are up 4.8% on last year, reflecting the quality of trade. Clearance sales are smaller this year due to better inventory management. The timing of winter markdowns also impacted the top line. Additionally, the 53-week trading period last year distorts the comparison.
Q: How much of the Country Road Group's disappointing performance is due to structural issues versus cyclical weak macro?
A: Roy Bagattini, Group Chief Executive Officer, Executive Director: The current macro environment has significantly impacted consumer confidence and footfall. However, the fundamentals of the business are intact. We have a great portfolio of brands and see a lot of runway to expand our presence. The separation from David Jones allows us to focus on resetting the structural economics of CRG.
Q: Why did you revise your guidance for CRG downward?
A: Roy Bagattini, Group Chief Executive Officer, Executive Director: CRG previously benefited from shared services with David Jones, which is no longer the case. This means CRG now has to carry costs it didn't previously bear. Additionally, the lower FY24 base, impacted by weak macros, necessitates a conservative margin target of greater than 10%. However, our internal plans exceed this target.
Q: Can you provide some guidance on how much capital is required to scale CRG to achieve more than 10% EBIT margin target?
A: Zaid Manjra, Group Finance Director, Executive Director: We believe that normal levels of CapEx will be sufficient to scale CRG. Significant investments have already been made in new space, channels, and online capabilities. Future investments will leverage the scale of these existing investments.
Q: How long can we expect you to reference stranded costs? Are these costs going to be cut out or are they part of the permanent cost base going forward?
A: Zaid Manjra, Group Finance Director, Executive Director: Stranded costs are group costs previously allocated to David Jones. We expect to eliminate these costs within 18 to 24 months. By FY25, we aim to reduce these costs significantly, with any residual costs becoming part of the existing business base.
Q: You've grown your Dash sales very strongly over the period. Does this mean you're taking market share in the online space?
A: Roy Bagattini, Group Chief Executive Officer, Executive Director: Our Dash sales grew by more than 70% this year, with 7% of all Dash customers being new to the Woolies brand. We are expanding Dash's reach, increasing slot capacity, and improving our app experience. Dash is profitable on a fully costed basis and is an incremental profit contributor for our business.
Q: How are you thinking about the competitive landscape in the food environment?
A: Roy Bagattini, Group Chief Executive Officer, Executive Director: The environment remains competitive, but we focus on what we do best—driving innovation, investing in price, and improving premium quality. We are not chasing indiscriminate space or cutting prices to play in different market segments. We see more opportunity to take profitable market share while sustaining our financial metrics.
Q: How many WEdit stores do you have now and how many can we expect over the next three years? How do the densities of these stores compare?
A: Roy Bagattini, Group Chief Executive Officer, Executive Director: We have just over 30 WEdit stores today and see potential for multiples of this number. We are opening 10 to 20 stores a year. The trading densities of WEdit stores are significantly higher than our big box stores, making them accretive to our overall business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
