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Woolworths Soars in Emphatic Approval of CEO Change: Street Wrap

Adelaide Changole and Janice Kew
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Woolworths Soars in Emphatic Approval of CEO Change: Street Wrap

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Woolworths Holdings Ltd. jumped the most in two years as investors and analysts showed their approval of a change in leadership at the South African retailer.

Roy Bagattini from Levi Strauss & Co. will become chief executive officer next month, replacing Ian Moir, who oversaw the Cape Town-based company’s troubled foray into Australia and who is stepping down after nine years. The stock surged 9.6% in Johannesburg, the most since January 2018.

The move “likely signals a desire to leave behind Australia distractions and refocus on domestic South African operations, where the food division has prospered and clothing is recovering from operational missteps,” said Charles Allen, an analyst at Bloomberg Intelligence.

Here’s more of what analysts are saying about the announcement:

Morgan Stanley: Sean Holmes

The market could be encouraged that a seasoned external executive has been appointed, but Bagattini’s relatively limited experience within the fashion retail industry could raise some questions.Considering that Woolworths has a relatively young retirement age for senior executives (63), it would suggest that the tenure of Bagattini (56) could be limited to about seven years.The market will likely pay close attention to Bagattini’s view/strategy on the Australian business (David Jones and Country Road) and the steps taken to reposition the South African clothing business.

Gryphon Asset Management: Casparus Treurnicht

Bagattini does not have any emotional strings to any of Woolworths’ previous acquisitions, so cutting off Australia should not be a problem.“If you asked me one month ago if they will be selling David Jones then my answer would have probably been ‘no.’ But now that Moir is side-lined, you can make that a very likely scenario.”Sentiment is definitely getting a boost, but the new CEO has very little room to make mistakes in the current South African economic environment. Gaining market share is the name of the game as the local retail consumption pool isn’t growing.

Sasfin Securities: David Shapiro, deputy chairman

The Australian operations have lost a lot of credibility and the longer that goes on, the bigger the problem. Often a CEO who has been there for a long time struggles to make the decisions they know they have to take, to admit that they are wrong and clean up.David Jones is pleasant enough to shop at, but it needs a differentiation factor. With Bagattini coming in, he can take a fresh look at the whole issue and can also re-focus the South African operations.The Woolworths food offering has done well and probably doesn’t need to be changed. But the South African clothing business needs a lot of re-thinking.

Syd Vianello, independent analyst

It’s good that Woolworths has brought in an outsider from a retail apparel environment.The only way department stores work is by making themselves a unique destination and by relying on foreign shoppers. In the David Jones model, it doesn’t have this. So a turnaround is needed.Bagattini, through his experience at Levi’s, will be able to direct how David Jones and Woolworths can broaden their appeal and improve online sales.I’d expect some turbulence in the next six months in terms of management shake-ups, but with the South African environment being sluggish, in many ways the timing couldn’t be better.

Independent Securities: Michele Santangelo

Moir has been rather unpopular with shareholders who have placed much of the blame for the disastrous acquisition of David Jones on him.Bagattini does seem to have a good pedigree and can perhaps bring in some much-needed strategic and operational changes.His global experience may be what is needed to assist Woolworths with its global operations, additionally his experience in apparel may also lift the performance of the South African clothing division.

--With assistance from Lisa Pham.

To contact the reporters on this story: Adelaide Changole in Nairobi at achangole2@bloomberg.net;Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, John Viljoen, Paul Jarvis

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