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January 28, 2020

Woolworths warns on H1 as Levi’s Bagattini named CEO

South African retailer Woolworths has warned on profits for the half-year after sales were impacted by a "constrained economic environment" and unseasonal weather, which impacted December trade.

By Hannah Abdulla

South African retailer Woolworths has warned on profits for the half-year after sales were impacted by a “constrained economic environment” and unseasonal weather, which impacted December trade.

The company sells food, clothing and homewares. It operates out of 279 clothing retail stores in South Africa and the Rest of Africa and has 442 food stores. The group also owns Country Road Group (540 standalone stores) and David Jones (47 stores), apparel retailers in Australia.

In a trading update for the 26 weeks to 29 December, Woolworths said group sales, which includes the Australia business, grew 3.8% year-on-year.

Fashion, beauty and home sales were up 2.2% or 0.9% in comparable-store sales after adjusting for a shift in trading weeks. The 2019 financial year had a 53-week year, which resulted in a shift in trading weeks in 2020 compared to the prior financial year. This shift resulted in the Christmas week, including Boxing Day, which is a significant trading day in Australia, falling into the first half of the current year compared to the second half of the prior year.

Woolworths noted an accounting change had impacted the business and said trade slowed during the critical December period on the back of power outages and unseasonal weather in parts of the country.

The group has warned half-year earnings per share could fall by between 15-20% to ZAR160.3-170.3 per share.

Levi’s exec Roy Bagattini named group CEO

Earlier this month, the group announced former vice president of Levi Strauss Americas, Roy Bagattini, is to replace its current group CEO Ian Moir, who has been with the business for nine years. Bagattini will assume the role of group CEO from 17 February.

He has also held positions as president of Carlsberg Group Asia and Africa from 2009-13 and held various executive roles with SABMiller in South Africa. In addition to leading numerous merger and acquisition projects during the course of his career, he has also spearheaded the turnaround of several companies and successfully driven their growth and expansion, said Woolworths.

Woolworths chairman, Hubert Brody, said: “Roy has extensive operational, management and turnaround experience in global consumer and retail markets, which will prove invaluable as we continue to navigate the structural changes taking place in the retail sector and the challenges particular to our group. The experienced executive management team, under Roy´s leadership, will continue to drive the future strategy for the Group. The board welcomes Roy and looks forward to his contribution.”

Moir remains CEO of the David Jones Australia business, a department store Woolworths acquired in 2014.

Commenting on the “much weaker than expected” trading update, Paul Steegers and Ilya Ogorodnikov, analysts at the Bank of America Merril Lynch, said the new CEO is a welcome development, however, Woolworths Australia arm remains challenged and “a strategic review should be considered.”

“It remains to be seen whether new management will look to spin off the Australian business or try to stabilise it and return it to growth.”

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