Truworths delivers good performance
January 16, 2009
By Tom Robbins
Cape Town - Truworths maintained its underlying sales performance in its first half to December despite the countrywide contraction in disposable income, the fashion retailer said yesterday.
Food retailers and discount clothing retailer Mr Price continued to grow sales over the festive season, but the market has been waiting to see how credit retailers Truworths and Foschini performed.
After stripping out an extra week in the previous year's first half, Truworths said sales at stores open at least a year were up 7 percent, matching the rate of growth in the same period the year before. Store inflation was 6 percent, indicating that volume growth was minimal.
While growth in same-store sales is considered the best indicator of underlying revenue performance, sales growth including new stores was reduced by 2 percentage points.
Sales growth on this basis was up 13 percent to R3.42 billion, from 15 percent in 2007.
Quinton Ivan, a portfolio manager at Coronation Fund Managers, said it was a good sales number given Truworths' higher price points relative to value retailers such as Mr Price, which had benefited from consumers buying down.
Analysts have said Tru¬worths' skill in its fashion calls had resulted in it continuing to entice consumers to part with what remains of their budgets for discretionary spending.
What was more encouraging, said Ivan, was that the retailer had grown profit more quickly than sales. The retailer said it expected basic earnings to increase by between 20 per¬cent and 25 percent, excluding the extra week in the prior year.
This was most likely due to the company predicting demand relatively accurately, avoiding the aggressive cut-price sales that hurt margins.
After expectations of a bleak festive season, budgeted stock levels either met demand or were slightly below demand. This resulted in the company having to mark down fewer products than previously, translating into the profit rise.
Other reasons for the earnings rise could have been better cost control or an improvement in customer bad debt levels.
While the retail sector had experienced a tough Christmas, Ivan said, it was better than had been expected.
Spending at malls might have been "perversely" helped, as fewer people went away on holiday, particularly in the economic heartland of Gauteng, Ivan added.
Truworths said that including the extra week in the previous first half, sales were up by only 9 percent. Trading space increased by 11 percent and investors will be keen to see how productive the new stores are.
Including the extra week in 2007, earnings a share were set to rise by between 12 percent and 17 percent.
Truworths fell 3.72 percent to R34.13, in line with the sector, which lost 3.53 percent.
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