Woolworths Holdings Limited (South Africa) has written down the value of Australian suiting brand Politix, as the brand's parent company Country Road Group reports a tank in profits for FY24.
Country Road Group is owned and managed by WHL, with the fashion group managing five key brands including Country Road, Mimco, Trenery, Witchery and Politix.
According WHL’s Annual Financial Statements 2024, the company identified a loss of R609 million (~A$50 million) related to the value of Politix.
WHL claimed the challenging macro economic environment and inflationary pressures on consumer disposable income has resulted in a lower recoverable amount for Politix cash-generating unit (CGU), totalling R514 million (A$42.3 million).
An independent auditor in the report said the South African business held goodwill, brands and customer databases at a carrying value of R6,716 million (A$556.82 million).
Goodwill refers to an intangible asset that represents the premium a company pays when it acquires another business. This premium is above the fair value of the identifiable assets and liabilities of the acquired business.
Goodwill typically includes things like the value of the brand, customer relationships, and other non-physical assets that contribute to the business's reputation and future earning potential.
According to the Annual Financial Statements report, the carrying value of goodwill of Country Road Group is R1,238 million (A$102.5 million).
The write-down of value for Politix comes as Country Road Group reported a 6.8 per cent fall in revenue over the last financial year, hitting R14,074 million (A$1.16 billion).
This fall contributed to a drop in profit before tax, which was down R533 million (negative A$44.15 million) in FY24 after hitting a record R1,512 million (positive A$125.26 million) in FY23.
WHL added that sales growth in the second half declined by 11.3 per cent for Country Road Group.
“Notwithstanding the macro-economic challenges, the Country Road brand delivered its strongest performance on record, with positive sales growth. Trading space increased by 4 per cent,” WHL reported
“During the year there has been ongoing expansion of our concession channels and wholesale distribution. The contribution from online sales increased to 27.6 per cent of total sales, supported by our leading omni-channel capabilities.
“Higher promotional activity to manage inventory levels and the impact of a weaker Australian Dollar on input costs resulted in a 230 bps decrease in the gross profit margin to 60.3 per cent. Whilst base expenses were well controlled, increasing by only 3.6 per cent, the impact of gross margin dilution, coupled with investment in new distribution channels and cost dis-synergies emanating from the David Jones separation, resulted in negative operational leverage.
“Adjusted operating profit of A$51.3 million decreased by 66.0 per cent, returning an operating profit margin of 4.6 per cent, compared to 12.4 per cent in the prior period.”
Looking ahead, WHL reported that prospects appear more positive in South Africa following the national election and the formation of the Government of National Unity, as well as the suspension of load shedding - referring to an ongoing period of widespread national blackouts of electricity supply.
Country Road Group brands also distribute and sell their goods in South Africa.
“Whilst inflation is easing, the trading environment is, however, expected to remain constrained as elevated interest rates continue to pose headwinds to consumer demand,” WHL reported.
“The same is true for Australia, with the pace of macro recovery likely to prove more protracted than initially envisaged.
“Notwithstanding these external factors, we remain confident in our ability to deliver against our strategies and are well placed to benefit from any cyclical consumer recovery.
“Furthermore, we have a robust balance sheet, are highly cash generative, and are leveraging our strengthened foundations to optimise our existing businesses and invest in new sources and avenues of growth.”