Big W has reported a decline in profitability across its clothing segment, which has in turn eaten into the low-price retailer’s overall earnings and profits.
According to its parent company Woolworths Group, clothing profitability declined at Big W compared to the prior year with the late arrival of Spring/Summer requiring elevated clearance in the first half, warmer weather in the second half impacting early Autumn/Winter season sell-through, and increased sales of lower priced items.
Big W’s earnings before interest, tax, depreciation and amortisation fell by 20.3 per cent to $180 million, with depreciation and amortisation hitting $215 million.
The retailer’s earnings before interest and tax (EBIT) fell into the red, hitting a loss of $35 million, down from a positive $14 million in the prior year.
All this came amid a total sales fall at the retailer of 0.8 per cent, hitting $4.64 billion.
After a softer first half, sales in H2 increased by a normalised 3.1 per cent driven by a successful ‘Toy Sale’ event in the fourth quarter. This excludes the impact of the 53rd week in FY24.
Strong item growth of 3.9 per cent and transaction growth of 3.4 per cent was offset by lower average selling prices due to a shift in mix to lower priced items and clearance activity.
Despite challenges in apparel, Big W’s toy sub-category was the highlight in the play category, driven by the sales event, alongside strengthened brand partnerships, new product launches and the resetting of everyday low prices on selected ranges.
Double-digit item increases drove sales growth in home supported by better sourcing and improved availability.
Everyday had a mixed performance with strong sales growth in beauty, albeit softening in H2, offsetting challenges in cleaning and pet due to a competitive trading environment.
Gross margin percentage at Big W decreased by a normalised 70 basis point to 29.5 per cent, mainly driven by a higher mix of lower margin items following range resets and lower prices in clothing and play, as well as elevated levels of clearance activity in Spring/Summer clothing.
Stock loss was broadly in line with the prior year supported by the rollout of ‘Health & Beauty’ shop-in-shops and process improvements. Cost of doing business (CODB) percentage increased by a normalised 36 basis points to 30.3 per cent. CODB hit $30.3 million, up from $29.9 million with the group reporting productivity improvements and effective management of volume-based costs partially offsetting wage growth.
Following the challenging performance of Big W, Woolworths Group noted an impairment of $346 million, adding to an overall significant items before income tax of $569 million. This includes $52 million of impairment and closure costs for MyDeal, and a $17 million impairment in Healthylife.
“Big W’s F25 performance was impacted by a shift in mix towards lower priced items as part of the range reset, increased clearance and markdown activity in clothing. This resulted in financial performance being below expectations and a review of Big W's near-term forecast and recoverable amount.
“As a result, impairment testing performed during the period identified that the carrying value of Big W exceeded its recoverable amount and a non-cash impairment of $346 million was recognised against goodwill ($72 million) and other assets, including lease assets ($146 million), intangible assets ($87 million), and property, plant and equipment ($41 million).”
Woolworths Group CEO Amanda Bardwell said there are now a pipeline of changes at Big W following a review of its FY25 performance. This includes rolling out RFID technology to improve availability and stock flow.
“We understand the challenges of this sector but also recognise the potential to grow incategories such as Everyday, Pet and Health & Beauty. Going forward, we want to ensure Big W has the appropriate foundations to be successful.
“We have begun a process to unlock Big W from Woolworths Group technology platforms. This will enable Big W to have systems appropriate for a discount department store and is the right thing to do for Big W and the group.”
Bardwell added that Big W will continue to reposition its range to provide more value and affordable options to customers. “We expect improvements in gross margin and an ongoing focus on cost to lead to an improved financial performance. For F26, Big W is currently expected to be EBIT and cash flow positive.”
“Having strengthened Big W’s management team, we are confident that we are taking the right steps to reposition our offer to provide better quality and more affordable options, a simpler range and better availability, particularly in clothing.”
Woolworths Group noted that the retailer has a sold stock position for spring/summer in the clothing category.
Other plans to address Big W’s performance include growth of e-commerce – including the Big W Marketplace – range rationalisation, simplifying the operating model, and improving gross profit through improving buying and sourcing initiatives and a strong store productivity pipeline.