Business Maverick
Woolworths trades happily at the high end
With the exception of clothing in Australia, Woolworths sold more food and clothes at higher margins, with profits outstripping revenue growth nicely. There may or may not be room at the top, but once you're there it can be pretty comfortable, it seems. BY PHILLIP DE WET.
Woolworths reported very close to a 30% increase in after-tax profits for the financial year to June, R1.6 billion on revenues of R25.8 billion for a net margin of 6.4%. That makes it more profitable than Massmart (1.7% net margin, but with extenuating circumstances) and only a third less profitable than the much bigger Shoprite (3.5% net margin), both of which reported results this week.
In Australia competition was tough, the currency was strong and the stars generally weren’t in alignment, the company said, but in just about every other respect it did extraordinarily well. Extraordinarily because the high-end consumers Woolworths targets throughout its operations again failed to switch to cheaper alternatives, despite many efforts to poach them.
And though you can argue about value for money in terms of its product lines, Woolworths isn’t cheap. On clothing and general merchandise, it took a 43.7% markup, and 24.4% on food. Its Country Road clothing business had a gross margin of 59.3%, although that was swallowed almost entirely by store costs.
Woolworths stores continued to sell about twice as much in clothing, linens and kitchen utensils as they do in food, though revenue growth in the food sector was quicker than for other merchandise.
Unlike other local retailers, Woolworths didn’t and doesn’t plan to aggressively open new stores, though it does want to go bigger on existing ones and roll out more convenience-store tie-ins with Engen garages. Not that it needs to do much more; it doesn’t need to go where the customers are, because the customers are happy to seek it out. DM