Country Road Group has posted a two-thirds drop in profits and says Aussie brands under review

The international owner of Country Road, Mimco, Witchery, Trenery and Politix is reviewing the carrying value of its Australian brands after profit sllump.

The owner of Country Road, Mimco, Trenery, Witchery and Politix are reviewing the carrying value of its Australian brands.

The tough trading conditions plaguing Australia’s fashion and apparel sectors will continue for some time, resulting in protracted promotions and discounting by retailers to shift stock that will hurt profitability, warns the South African owner of fashion house Country Road.

It comes as Country Road Group revealed a more than a two-thirds slump in its December half earnings and weaker sales as not even the Black Friday and pre-Christmas sales was enough to lift profits.

Such is the pain now being felt by the retailer group, whose brands include Country Road, Witchery, Mimco, Trenery and Politix, that it has been forced to investigate the carrying value of its Australian chains that could result in costly impairments.

It also casts a shadow over the wider fashion sector currently buckling under the weight of a frugal shopper experiencing cost-of-living pressures.

It is feared other retailers will also take an axe to the valuation of their brands in coming months.

On Wednesday South Africa’s Woolworths Holdings reported its interim results, which includes its Australian arm, Country Road Group. Country Road Group posted a 71.7 per cent slump in interim earnings to $14.2m as the downturn in consumer spending and tough trading environment reduced traffic into its stores, while a weak dollar and heavy discounting in the sector constricted profits.

It said sales fell 6.2 per cent for the period and by 7.8 per cent on a comparable-store basis.

“The apparel trading environment in Australia and New Zealand remains significantly constrained, characterised by reduced footfall and spend, and intense promotional activity,” Woolworths Holdings said.

This higher promotional activity to manage inventory levels and the impact of a weaker dollar on input costs resulted in a 320-basis-point decrease in the gross profit margin to 58.9 per cent, Woolworths Holdings said.

The retailer does not hold out much optimism for the trading environment to improve in the near term, despite the recent cut in interest rates, and this has led the company to review the carrying value of its Australian fashion brands.

“In Australia, whilst a gradual recovery in GDP growth, alongside easing monetary policy is expected, the retail sector is likely to remain highly promotional until such time as the pressures of living costs ease,” it said.

“During the second half of the financial year, we will undertake a reassessment of the carrying value of the assets of our underperforming brands within the Country Road Group. This exercise will give due consideration to the macroeconomic environment, our strategic plans and our reset operating model.”

The fashion house was also hurt by the costs flowing from the sale of its former stablemate, up-market department store David Jones, which has seen a long list of operational and administrative costs once shared now solely carried by Country Road Group.

“Following the sale of David Jones in the 2023 financial year, and the successful separation of Country Road Group from David Jones in the 2024 financial year, Country Road Group is currently in the midst of a significant restructure to reconfigure its operating model and reset its struc­tural economics as a stand-alone business,” Woolworths Holdings said, adding that the restructure was being accelerated.

Woolworths Holdings sold David Jones for $100m in 2022 to private equity firm Anchorage, having bought the retailer for $2.1bn in 2014, and the separation from the David Jones business has seen extra costs piled onto its Country Road Group arm.

Country Road flagship stores is Sydney's CBD. Picture: Britta Campion

Early last year the Melbourne-based Country Road was plunged into a sexual harassment and workplace bullying scandal that resulted in two highly placed executives depart and staff morale sink, with the global boss for Woolworths Holdings forced to fly to Australia several times to address staff and announce an external investigation into the handling of employee complaints.

Later Country Road pushed through a restructure and redundancy program with the highly respected boss of its Country Road label, Elle Roseby, departing the scandal-ridden company to become the new CEO of home furnishings retailer Adairs.

Meanwhile, the weaker earnings report from Country Road Group paints a grim picture of the nation’s discretionary retail sector, especially fashion and apparel, which has been hit with a pullback in consumer spending, falling sales and shrinking profitability as many retailers issued profit warnings and others lurch into voluntary administration and collapse.

Earlier this year department store owner Myer and billionaire Solomon Lew’s Premier Investments, whose brands at the time included Just Jeans, Jay Jays, Portmans and Dotti, issued profit warnings, which revealed the poor and depressing state of the fashion and apparel sectors.

Late last year Myer sealed a deal to buy five fashion brands (Just Jeans, JayJays, Portmans, Dotti and Jacqui-E) from Premier’s apparel division. The deal went through despite Premier reporting sliding sales and earnings for these high-profile brands.

Now part of Myer, both the department store and Premier Investments – which still owns sleepwear brand Peter Alexander and stationery store Smiggle – are due to report their half-year results later this month.

Other fashion retailers have not lasted the distance.