Worsening trading conditions slash Country Road Group’s sales and profits

Country Road Group, whose brands include Country Road, Mimco and Witchery, was forced to discount fashion to clear stock amid tough conditions that led to a dive in sales and profits.

Country Road Group, whose brands include Country Road, Mimco and Witchery, suffered a sales and profit slump in the first half.

The South African owners of fashion and apparel retailer Country Road Group say trading conditions in Australia have continued to worsen after an almost double-digit slide in sales and its profits collapsed by almost half.

Margins at the retailer, whose fashion and apparel brands include Country Road, Mimco and Witchery, were crunched as it was forced to ratchet up its dependence on promotions and discounts to clear stock while the fall in the Australian dollar added to input costs.

The downturn in consumer sentiment, household savings at two-decade lows and a switch by consumers to services and away from discretionary goods had also weakened the performance of its Country Road Group.

Woolworths Holdings, which in late 2022 sold David Jones but kept ownership of Country Road Group, said same store sales for its Australian fashion and apparel brands fell by 9.5 per cent for the 26 weeks to December 24.

The company said total sales for the Country Road Group – whose stable covers Country Road, Witchery, Mimco, Trenery and Politix – were down 5 per cent for the half. But sales growth in the last six weeks of the first half were up 1.3 per cent, likely fuelled by Black Friday and Christmas sales.

Now jettisoned from its stablemate David Jones and operating in a much tougher trading environment, the profitability of Country Road Group has suffered, mirroring the poor performance of many other fashion chains and especially discretionary retailers.

Woolworths Holdings on Wednesday said higher promotional activity to reduce inventory levels and the impact of a weaker Australian dollar on input costs resulted in a 140 basis point decrease in the gross profit margin to 62.1 per cent.

This saw Country Road Group ultimately post a 46.1 per cent decline in its first-half adjusted operating profit to $50.2m. Its operating profit margin of 8.5 per cent was down from 15 per cent previously.

Woolworths Holding has maintained ownership of the David Jones building in Melbourne’s Bourke Street mall, which in the latest accounts is valued at about $240.5m and generated rent of about $9m in the half.

Country Road Group has suffered a slide in sales and profits as it faces tough trading conditions for the fashion and apparel sector. Picture: Lachie Millard

In the commentary accompanying the results, Woolworths Holdings reflected on the increasingly tough trading conditions in the Australian and New Zealand markets.

“Trading conditions in Australia and New Zealand have deteriorated further, with consumer sentiment in Australia at near-record lows, and household savings the weakest since the GFC,” the company said.

“In addition, the retail industry has been disproportionately impacted by the shift in spending away from goods to services.”

It warned the outlook for the rest of the financial year was expected to remain challenging.

“Whilst inflation is expected to ease gradually, interest rates across both geographies (South Africa and Australia) are likely to remain elevated, placing continued pressure on consumer disposable income.”

In January, Country Road Group warned that near-record low consumer sentiment and the weak household savings rate since the global financial crisis had worsened the outlook for retailers.

After selling the David Jones department stores to private equity firm Anchorage Capital for around $100m, Woolworths Holdings is focused on improving its remaining Australian assets that sit within the Country Road Group and has pledged to invest heavily in the fashion and apparel brands.

It recently unveiled plans to transform the flagship Country Road business into Australia’s most admired “lifestyle brand house”, with plans to invest up to $82m to improve operations, open new stores and potentially expand overseas.