Woolworths’ latest results tell a familiar story. Food carried the group in the year to end-June. Fashion struggled and the Australian business remained a drag.
This raises a familiar question: Should Woolworths be singularly focused on its fat-margined food division?
This was the first set of full-year results delivered by CEO Sam Ngumeni, who used the numbers to lay out a clear reset around food as the group’s central focus. “It’s a risky reset, but I think it’s worthwhile chasing down,” he told investors at a presentation.
Ngumeni has spent more than three decades at Woolworths and has run the food segment for the past two years. He has deep institutional knowledge. The challenge now, he says, is deciding where to focus time, energy and resources across the wider portfolio. “We need to optimise the group’s portfolio and improve the quality and consistency of earnings.” A full strategic review — covering fashion, beauty, home, financial services and Country Road Group — is under way, with findings due for release at the 2027 interim results.
Food remains the earnings engine, with R3.7bn in adjusted operating profit at a 6.7% operating margin. This is by far the largest contributor to local earnings, with a sector-leading 37% return on capital (ROC) employed despite years of heavy investment in infrastructure and supply chain. The division accounts for 66% of group revenue and 69% of operating profit.
Turnover and concession sales rose 5.7% to R55.4bn, with gross margin held at 24.9% despite fuel costs, distribution centre investment and online cost pressures. Comparable sales grew 3.7%, with online now making up 7.3% of South African food sales. Woolies Dash, the on-demand delivery service, grew almost 20%.
Growth, though, slowed in the second half on disruptions, weaker bakery performance and produce volume challenges. The last issue was not a supply shortage, Ngumeni explained, but deliberate decisions to withhold produce that didn’t meet quality standards, even at the cost of volume. The group has since added suppliers.
Encouragingly, partnerships offer further growth opportunities in the food segment — most notably the Uber Eats tie-up that has more than doubled certain revenue streams. Over the next three to five years, Woolworths also plans to double its Engen forecourt footprint, which has expanded to about 100 stores over the past decade.
Loyalty programme migration, by contrast, has underperformed.
The group’s fashion, beauty and home (FBH) division had a difficult second half. Gross margin fell 1.3 percentage points to 46%, hurt by price investment in kids- and babywear, clearance of excess inventory from a soft first half, margin dilution in branded beauty and rising fuel costs. Divisional adjusted ebit fell 14% to R1.4bn — representing an 8.6% margin.
About 80% of FBH sales still come from core fashion, with the rest split between home and beauty. The priority is trimming a long, unproductive tail of fashion stock and reallocating that space to a much-improved home segment. Ngumeni said Absolute Pets, the group’s standalone pet business, is “doing phenomenally well” and is being expanded.
Country Road, the Australian fashion arm, returned to profit but had a rough start to the new financial year, with like-for-like sales down 7.7% in the first seven weeks.
Ngumeni said two years of running food has confirmed his conviction that premium food is Woolworths’ strongest competitive advantage over a five- to 10-year horizon. But he indicated that splitting food and clothing into separate businesses — an idea mooted by commentators — isn’t on the table.
What he wants instead is internal clarity that food is the group’s engine. Plans include more cafés and coffee shops, expansion of Absolute Pets and tighter capital allocation.
Ngumeni also acknowledged that the group has been “disappointed terribly” with its app. He said online growth has been constrained by a narrow focus on profitability metrics, leaving digital customers underserved by outdated architecture. This is despite clear evidence that cross-channel shoppers spend more.
Ultimately, the food-first reset raises a harder question: Can Woolworths’ premium positioning still generate meaningful volume growth in this economy?
Woolworths Food’s 3.7% comparable sales growth came against average price inflation of 4.7% — implying that volumes actually fell by about 1%, even as rand sales rose.
Steph Erasmus, investment analyst at Anchor Capital, calls the renewed food focus strategically logical. But he questions whether the offer is relevant to the South African consumer’s context — reading the numbers as underlying volume weakness despite the company’s references to supply and produce quality issues.
For Erasmus, the real test is how many South Africans are genuinely trading up vs staying anchored in the middle, where rival Checkers has them covered. The Woolworths Food story, Erasmus argues, needs a bigger, more affluent shopper base than the 3% growth the economy supports. He points out that the Uber Eats delivery venture won’t match the margins of an in-house model like Sixty60.
Nedbank senior equity analyst Paul Steegers argues that the strategy makes sense. Focus on food, the “golden child”, while working out what to do with a more complicated fashion and homeware business, which, along with Country Road, is “clearly struggling”.
Rather than spread capital thinly, he believes management should keep deepening its food advantage. This would entail continuing to roll out “store of the future” formats performing well at sites like Tyger Valley, expanding the food court footprint and growing WCafé (where only about 15% of Woolworths food customers currently shop). WCellar is another adjacency being built out. The one drag is that online sales growth is margin-dilutive, even as the core business performs strongly.
On FBH, Steegers points out that the 13% ROC is unspectacular but still ahead of a struggler like TFG. He says that while the core clothing segment appears headed toward cutting underperforming stock-keeping units and curating a tighter range, this follows three years of heavy capex that should already be showing up more clearly in margins.
Steegers expects Woolworths to sell Country Road once profitability improves.
One of the moves to watch is the pending acquisition of In2Food Group, a major manufacturer behind much of its private-label food. Steegers expects In2Food to be earnings-accretive and sees it as both defensive (locking in supply from a key partner) and offensive (In2Food also supplies international retailers, including Marks & Spencer).
He notes that the business isn’t materially more capital-intensive than Woolworths’ existing operations and that key management has reportedly been retained through contracts and earn-outs, which should reduce execution risk.
Overall, though, Checkers remains the fastest-growing major food retailer in South Africa, with sales up roughly 10% (including a strong liquor performance), against Woolworths Food’s 5.7% growth. Steegers says Checkers and Woolworths are most likely gaining share at the expense of Pick n Pay and Spar, while Boxer continues to pick up share at the lower end of the market.
Gryphon Asset Management portfolio manager Casparus Treurnicht calls Checkers the most competitive force in retail and warns that Woolworths needs to stay on top of its game — “otherwise they risk migrating to where Pick n Pay and Spar are finding themselves”. Woolworths Food serves a genuinely unique high-LSM base, he says, but the industry is downtrading at a pace unseen in 20 years, which makes holding market share especially critical.
Treurnicht reckons a separate listing for the food division would also be difficult, pointing out that some stores rely on food (at the back of the store) to draw customers through FBH.
Otto1890 equity analyst Alec Abraham agrees that Woolworths should go food-first. Cross-selling clothing to its high-income food customers is tempting, but the group has never sustained success there, whereas food has consistently led on quality, innovation and, more recently, value.
Abraham says that edge is now under pressure from Checkers, executing just as sharply for the same upper-income shopper. “If Woolworths gets complacent, stops watching the competition, or slips even briefly on food execution, Shoprite could take its edge the way it took Spar’s.”
