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Woolworths said trading in its Australian apparel business slowed sharply at the end of the first half, while stepped-up investment in its South African food division weighed on margins.<\/p>\n
The Australian market \u201cis highly promotionally driven,\u201d Chief Executive Officer Roy Bagattini said in an interview Wednesday. \u201cThere\u2019s not much that you buy in Australia today that is not on sale or not with a discounted price ticket. So those businesses are sitting with a lot of inventory, particularly in discretionary categories.\u201d<\/p>\n
In South Africa, the Cape Town-based company added capacity at its Midrand food-distribution center. Food accounts for 64% of total revenue and there are \u201ca number of new opportunities we are going after\u201d especially in food services, Bagattini said. That includes Woolworths caf\u00e9s, coffee shops, takeaway restaurants and school tuck shops.<\/p>\n
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Read: Strong start to the year for golden JSE
Woolworths promises no jobs are at risk as it tests self-service till
Woolworths sales climb but profits set to fall sharply<\/p>\n
The cost of the new food-distribution center, together with more discounts to clear excess inventory and lowered prices on children\u2019s clothing, pressured profit margins. Net income fell 33% to R1.48 billion ($90 million), Woolworths reported earlier.<\/p>\n
Still, cheaper children\u2019s clothing is boosting sales with the recently introduced winter range trading 28% higher, the CEO said.<\/p>\n
\u201cWe made a strategic call a little while ago to really go after kids and baby,\u201d Bagattini said. \u201cWe see big market-share opportunities,\u201d as well as \u201csignificant cross-shop opportunity between the kids category and apparel and the food customer.\u201d<\/p>\n
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The stock was little changed after declining as much as 2.2% and gaining 2.5% in Johannesburg. It has dropped 8.6% this year, the biggest retreat among clothing sellers on the broader South African retailers\u2019 index, which has lost 4.5% over the period.<\/p>\n
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