8 of 2022`

Newsletter No 08 / 4 March 2022                                 


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Woolworths brings R1bn back from Australia to pay down SA debt

By Katharine Child and Karl Gernetzky

Picture: Freddy Mavunda

Revenue was under pressure in last six months of 2021, but capital restructuring Down Under lifts balance sheet

Retailer Woolworths has resumed its half-year dividend repayments and returned R1bn from Australia for SA debt, in a stark reversal of fortunes, after losing billions in SA profits Down Under.

The group spent over R21bn buying clothing businesses in Australia, racking up debt guaranteed by the SA business, which is now in a net cash position of R258m, from net borrowing of R6.8bn previously.

Woolworths declared an 85c interim dividend for its half-year to December, a payout of about R894m, after not paying one in the previous matching period.

Investec said in a note that Woolworths had a “strong balance sheet” and rated the stock as a buy.

However, Woolworths’s headline earnings, a measure that omits one-off items, dropped 35.4% to R1.6bn as it faces challenges on many fronts, with a slow clothing recovery in SA and lockdown-related store closures in Australia. The local food business reported sluggish growth off a high base in 2020, when consumers spent more time cooking at home.

Australian clothing chain David Jones, whose debt was repaid in 2021 after the sale of a Sydney store building, recorded a fall in operating profit of over 44% after Australia enacted the world’s most stringent Covid-19 lockdowns. But it still generated cash of A$347m, with some sent back to SA.

David Jones has closed six loss-making stores, leaving it with 44, and the group is planning a further 20% reduction in outlets over the next two years.

Some investors have called for Woolworths to divest from its Australian businesses and focus on SA, with others suggesting the three businesses should be separated, allowing investors to own only its quality SA food operations without the drag of the underperforming fashion and Australian businesses.

CEO Roy Bagattini said it was not looking to sell David Jones yet as it returns it to profitability, but admitted he is frequently asked the question by investors.

Both Australian clothing businesses, Country Road and David Jones, are cutting store space and showed signs of growth in late 2021 after the months-long lockdowns ended.

In SA, Woolworths Food, its star business, grew revenue 3.5% to R19.3bn.

Woolworths is facing growing competition from Shoprite-owned Checkers, which grew revenue 11% in its half-year as it opens more upmarket grocery stores.

Bagattini said Woolworths has been growing market share for 14 years straight and will work to retain its position.

Woolworths is responding to competition with price discounts on key food items like fresh chicken, tuna, coffee and pasta. It also offers promotions at peak shopping times, but Bagattini said it will retain its premium food focus. The strategy of selling chicken at lower prices, however, had been very successful, he said.

Investors quizzed him about competition from Checkers in a Wednesday conference call, a sign many are aware of parent company Shoprite’s growing dominance. It is adding standalone pet and baby stores and investing in its pharmacy chains.

Bagattini said unlike peers whose growth was in part explained by new stores, it was not expanding as much. “Our growth is organic. We’re not opening up a ton more stores.”

In SA, Woolworths is looking at expanding its bottle stores from a single well-performing wine store in Bryanston. Peers Spar, Pick n Pay and Checkers all have a significant liquor footprint.

With debt repaid in Australia, management is focusing more on SA and is planning to invest in pet and wellness categories while scouring a few townships for sites as it has no Woolworths food stores there.

Bagattini told Business Day that “wellness is a big source of potential for us” and aligns with our brand. “We have new concepts in the pipeline as well.”

He said the food business, while facing stiff competition, had among the highest operating margins for food retail in the world, at 7%-8%. This made it a world-class business and able to enact discounts. By contrast, Walmart, the world’s biggest grocer, has an operating margin of about 3%.

Bagattini is positive about a turnaround in the SA fashion business, which under his leadership has reduced the number of products and brands on sale.

As an example, it used to have 120 different types of socks and now has just 90.

The fashion, beauty and home business grew 4.2%, while prices were up 5.4%, meaning it sold fewer goods than in 2020 with growth attributable to prices. This is in line with its strategy to have more sales and fewer promotions.

As its women’s wear underperformed expectations, Woolworths has identified what “must win” categories to invest in: more wardrobe basics and essentials.

It no longer wants to focus on fast fashion, products that people buy for a season, an area many competitors from Mr Price to Zara have perfected.

Woolworths’s share price rose the most since mid-November on Wednesday, up 6.03% R54.66, giving it a market capitalisation of nearly R53bn.    BL

Bounty Apparel becomes exclusive distributor of Reebok in SA, SADC

Authentic Brands Group has appointed Bounty Apparel as the sole distributor for Reebok in South Africa and countries within the SADC. This follows the recent €2.1bn ($2.46bn) takeover of Reebok by Authentic Brands from Adidas, which aims to focus on its core brand instead.

The Reebok acquisition is expected to close on 28 February 2022.

Bounty Apparel, a subsidiary of Bounty Brands Group, is a distributor of premium international apparel and footwear brands in Southern Africa, including Vans, Jeep, Superdry, Hurley and Diesel.
“Not only does Reebok have an amazing pedigree, but it is also a great fit with our current portfolio of brands. We are very excited about Reebok’s potential in the local market and look forward to a long and successful partnership with the brand,” comments Warren Bowers, MD of Bounty Apparel.

Stefan Rabe, Bounty Brands group chief executive officer, added that, “Bounty Brands has a long history of successfully representing leading global and local brands in the Southern African market. We believe that our successful appointment was as a result of ABG recognising both our proven brand-building capabilities and the fact that we have the resources to represent such a major brand in the local market.”
Corey Salter, chief operating officer at Authentic Brands Group commented, “We are very pleased to welcome Bounty as our new Reebok partner in South Africa and are thrilled with their commitment to the brand. Bounty is a respected and experienced distributor of leading global brands, and this partnership furthers our mission to secure Reebok’s presence in key territories around the world.”    bizcommunity

#LoveWhatYouDo :

Sweet-Orr celebrates 10 talented South Africans in a new video series.

For just over 150 years, Sweet-Orr has empowered generations of people in countless industries to do the work they love, with confidence and peace of mind. Renowned for the superior quality of their garments, Sweet-Orr is at the forefront of workwear with an unwavering commitment to the people that wear them.

It’s this commitment that has always drawn Sweet-Orr to trailblazers, creative thinkers, and hard workers in every field; and why they’ve chosen to celebrate them and the remarkable work they do. Launching the #LoveWhatYouDo campaign, Sweet-Orr has partnered with 10 South African industry leaders to showcase their talent and celebrate their inspiring stories. It’s a salute to the hardworking men and women from different industries, who all share one common trait: they have a deep-rooted love and passion for what they do.

The #LoveWhatYouDo campaign will see each of these talented individuals tell their unique stories, and share what inspires and drives them, and where the love for their craft comes from. In this video series, we’ll get a first-hand glimpse into their world, and celebrate ordinary people doing extraordinary things.

Otto Du Plessis Sculptor

David Southwood Photographer

Gino Lange Custom Car Fabricator

Hiram Koopman Saxophonist

Jo Neser Olive Farmer

Thandie Dowrey Jewellery Designer

Leighton Rathbone Mixologist

Bongani Mnisi Head of Conservation

Lyndi Sales Contemporary Artist

Buddy Chellan BMX Athlete

“As one of the oldest global protective wear brands,” says Executive Director Denver Berman-Jacob, “we don’t only pride ourselves on the quality of our garments, but also on the small role we get to play in enabling individuals; artists, creators, makers, craftsmen and women, to what inspires them, the things that drive, the things that make the world a better place. We felt this campaign was important to not only celebrate the wearers of our garments but to be a voice of hope at a time when society can do with a positive message. And the message is clear, do what you love, love what you do.”

Over the course of the next few months, this video series will tell untold stories, celebrate remarkable journeys, and inspire us all to find love in everything that we do. #LoveWhatYouDo

The most talked about Oscars dresses of all time

Cher, 1998

At this point, it would be more scandalous if Cher didn’t wear something revealing to the Oscars. This shimmery number maintained the trend, from outlandish headdress to beaded hem.

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