Woolworths is a story of three businesses.
At its core sits the premium South African food operation, consistently profitable and long admired for quality and innovation. Alongside it is the fashion, beauty and home division (FBH), which has shown progress under CEO Roy Bagattini but still cannot be called a growth engine. Then there is Australia’s Country Road Group (CRG), now its sole offshore asset after the sale of David Jones, and the clear laggard, battling both a weak consumer economy and underperformance against peers.
The group’s financial 2025 results reflected that uneven profile. Group sales rose 6.1% to R81bn, but adjusted earnings before interest and tax fell nearly 11% and adjusted diluted headline earnings per share declined by 19%. Food was again the star, with revenue up 11% to R52.4bn, supported by market share gains and positive volume growth. The division’s ability to raise prices modestly while still selling more at full price reinforced its dominance, with gross margins improving thanks to supply chain efficiencies and disciplined promotions. Investments in the new Midrand distribution centre, digital capacity and platforms such as Woolies Dash are designed to secure that lead.
But there are risks to assuming food will always be the fortress. South Africa’s middle- and high-income groups, Woolworths’s traditional customer base, are under pressure from weak income growth and high household debt. Many of the country’s best-performing listed companies are targeting the value segment instead.
The plunge in sales of luxury German cars is a stark reminder of how quickly premium brands can lose share of wallet. At the same time, rivals such as Checkers are upping their premium game, while Spar has sharpened its fresh and convenience proposition. Woolworths Food remains exceptional, but the moat is being tested in ways that were not evident a decade ago.
The FBH division is in better shape than in years past, though still more average than stellar. Woolworths spent R1.5bn on overhauling its value chain, and Bagattini insists the changes are fundamental. He cites operational proof points: full-price sales now above 80% and product availability consistently above 90%. These are meaningful improvements, and new leadership is focusing on growth categories such as kidswear and beauty. But this remains a business still proving itself.
Australia is where the pain lies. At CRG turnover fell 5.4% and gross margins were squeezed by a weak Australian dollar and heavy discounting. It reported an operating loss of A$18m. Peers have fared better in the same environment, underscoring that CRG’s problem is not just macro but also execution. Management insists FY2025 was the trough: A$30m of costs have been cut, the structural economics reset, and Witchery has shown double-digit sales growth since being repositioned.
Woolworths Food remains exceptional, but the moat is being tested in ways that were not evident a decade ago
The new “House of Brands” strategy under incoming CEO Steven Cook is meant to restore clarity and independence to the labels. Even if CRG just returns to breakeven in financial 2026, it would swing group earnings positively, but for now this remains the weakest link.
Financially, Woolworths still has resilience. Net debt was steady at R5.6bn with gearing at 1.46 times earnings before interest, tax, depreciation and amortisation (ebitda). Free cash flow of R1.9bn and cash conversion of 83% highlighted its cash-generating ability, and return on capital employed at 16.4% remained comfortably above the cost of capital. A share buyback programme, largely funded by the A$22m David Jones Melbourne property sale, is under way, with management confident that net debt will fall further in 2026 as ebitda improves and inventories normalise.
At a trailing p:e multiple of 17.6, Woolworths trades broadly in line with local peers. Yet analysts argue the market is effectively valuing it as a food-only retailer, assigning little to no worth to FBH or CRG. That creates optionality: if FBH’s turnaround continues or CRG claws its way back into the black, the earnings base could expand meaningfully. There is also the possibility that Woolworths might at some point sell CRG, unlocking further value.
Capital discipline has been clear under Bagattini. Woolworths has raised billions in divestments, including David Jones, and reinvested funds into strategic growth enablers such as supply chain, digital platforms and loyalty. Woolworths Ventures is experimenting with adjacent categories such as Absolute Pets, WCellar and WEdit, each growing strongly last year. These ventures may be small, but they highlight an innovation mindset that keeps the group relevant.
Early financial 2026 trading has been encouraging, with food up 6.9%, FBH 8.3% and CRG 1.2%, but the short time frame makes it little more than a tentative signal.
The investment case is delicately poised. With the market assigning little value to FBH or CRG, a successful turnaround in either could trigger a meaningful rerating. But if the food engine falters and the optionality fails to materialise, today’s valuation begins to look demanding.
At current levels, the stock carries both a margin of safety and a margin of uncertainty.
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