Woolworths Holdings (WHL)

Most South Africans have an opinion about Woolworths. The rotisserie chicken, the sushi markup, whether the price of the ready meals can possibly be justified. Far fewer have looked at what is happening behind the till.

What they would find is a company where the story has quietly inverted. For years the argument about Woolworths was that a very good food business was being held back by a bad Australian clothing business. In the year to June 2026, the Australian business finally turned a profit. The South African clothing business went backwards instead.

The share price has roughly halved over the past year, to around R40. Here is what is actually in the numbers.

What Woolworths actually owns

The group reported turnover and concession sales of R84.5 billion for the 52 weeks to 28 June 2026, up 4.3%. It comes from four places.

Woolworths Food is the engine, at R55.4 billion. This is the premium end of South African grocery, and it competes directly with Checkers for the same customer.

Fashion, Beauty and Home is R16.1 billion. Clothing, cosmetics and homeware under the Woolworths brand.

Country Road Group is the Australian arm, at about A$1.07 billion, roughly R12.2 billion. It owns Country Road, Trenery, Witchery and Politix.

Woolworths Financial Services is a store card and insurance book run jointly with Absa. It contributed R228 million in profit after tax, up 5.6%. Its real value to the group is the spending data it feeds back into the Food business rather than the profit it books.

Food is working, and slowing

Food grew turnover 5.7%. Strip out new store space and sales from the same stores grew 3.7%, against average price increases of 4.7%. That means volumes were roughly flat to slightly down: customers paid more and bought a little less. In a year when much of South African grocery saw no volume growth at all, holding flat while taking share is a real result, and management described it as profitable market share gains.

The operating margin was 6.7%, with operating profit of R3.7 billion, up 3.2%. Gross margin held at 24.9%. Return on capital in the Food business was 37.3%, which is very high for grocery, though down 3.6 percentage points on the prior year.

Online is now 7.3% of South African Food sales, and on-demand delivery grew 19.6%.

The caution sits in the current year. In the first weeks of the 2027 financial year, Food sales grew 3.2%, which management flagged as below the range they had expected for the first half. That is one data point in a short window, but it is the engine slowing rather than accelerating.

The clothing business is the new problem

Fashion, Beauty and Home grew sales 4.4% to R16.1 billion, which looks acceptable until you reach the profit line.

Operating profit fell 14.1% to R1.4 billion. The margin dropped 1.8 percentage points to 8.6%. Gross margin fell 1.3 points to 46%, because the business was clearing excess stock and cutting prices in kidswear. Lower profit from the rest of Africa and currency losses added to it.

Underneath that, the mix is revealing. Beauty grew 7.9% and Home grew 11.7%. Fashion, the actual clothing, managed comparable price growth of 0.9%. The parts of the division that are not clothes are carrying it.

This is the single biggest change from a year ago. The division that was supposed to be the high-margin counterweight to Food is now the one whose profit is falling fastest.

Country Road stopped bleeding, briefly

Country Road Group returned to a full-year profit of A$2.3 million, against a loss of A$18.1 million the year before. Sales grew 1% and gross margin improved 1.3 points to 57.7%. After years of losses and two failed turnaround promises, that is the outcome shareholders had been waiting for.

It did not last. In the first seven weeks of the new financial year, Country Road sales fell 7.7%. The group plans to shrink the Australian store footprint by 6% to 6.5% over the full year. A profit of A$2.3 million on sales of over a billion Australian dollars is a 0.3% margin, which means it takes very little to push the business back into a loss.

So the Australian question is not resolved. It has moved from whether the business will ever make money to whether it can hold what it just made while shrinking.

A new chief executive and a reset

Sam Ngumeni became group chief executive on 1 June 2026, succeeding Roy Bagattini. He was previously group chief operating officer and ran the Food division, so he is taking over the business he already knew best.

The FY2026 results are therefore the last set belonging to the previous management, and the strategy attached to them is his first move. The reset centres the group on Food. Food Services, delivery partnerships including UberEats and Engen, new store formats and an online rebuild are the stated priorities. Capital spending for FY2027 is planned at R2.2 billion, down from R2.4 billion, with a larger share going into stores.

The most consequential line is about clothing. Fashion, Beauty and Home will focus on selected adjacencies rather than operating as a standalone business. That is corporate language for a demotion. A strategic review of the portfolio is underway, with an update promised at the interim results.

What the shares cost

At around R40, Woolworths is worth roughly R35.5 billion and trades at about 15 times earnings already reported.

A common argument is that the shares sit at a wide discount to their own history. That argument is weaker than it looks. Woolworths has traded at a median of about 16 times earnings over the past thirteen years. At 15 times, it is close to its own long-run average rather than well below it.

The comparison with Shoprite is the sharper one. Shoprite trades near 22 times earnings, with a market value of about R176 billion, five times the size of Woolworths. A grocery business earning 37% on capital arguably deserves a multiple closer to Shoprite's than the one the group as a whole receives.

The balance sheet carries more debt than the group is usually credited with. Net debt was R5.9 billion excluding lease obligations, up from R5.6 billion, at 1.44 times earnings before interest, tax, depreciation and amortisation. That is manageable, not negligible. The group paid a total dividend of 199 cents, up 5.9%, at a payout ratio of 70% of headline earnings.

Return on capital employed for the group was 17%, against a stated cost of capital of 11.2%. The company did not disclose a return on equity figure in these results.

What to watch from here

Food sales in the first half of FY2027. Growth of 3.2% in the opening weeks was below management's own expectation. Whether that is a soft start or a trend is the most important number in the group.

Fashion, Beauty and Home margin. Profit fell 14.1% on sales that grew. Either the margin stabilises or the division's role in the group changes again.

The strategic review, due at interim results. Management has said every part of the portfolio needs a clear role. Country Road at a 0.3% margin while shrinking, and clothing demoted from standalone status, are both candidates for a decision rather than another year of patience.

Country Road trading. Down 7.7% in seven weeks, with space coming out. A business this close to breakeven does not need much to return to a loss.