JD Group feels the squeeze in its beleaguered debtors book
January 30, 2008
By Tom Robbins
Cape Town - Credit sales at the JD Group fell sharply, as expected, but consumer arrears fell only marginally at the company that owns national retail chains such as Morkels and Incredible Connection.
Sales at credit chains fell 13.1 percent in the four months to January 15 compared with the same period in the previous year, according to Business Report's calculations.
"Sales were expected to be bad and this is bad, so there is no surprise," Abri du Plessis, the chief investment officer at Gryphon Asset Management, said yesterday. "But the debtors book still looks quite okay and I don't think the problem is on that side."
JD Group said receivable arrears as a percentage of gross receivables stood at 10.6 percent compared with 10.2 percent at the August financial year-end.
Last June the National Credit Act kicked in with its stricter lending criteria, but even before that the retailer said it would be more cautious about granting consumer loans, as household debt rose to record levels that have continued to climb.
This was compounded by the total 4 percentage point rise in interest rates over the past 19 months.
Du Plessis said consumers would come under further pressure as the December rate hike had yet to be felt. He said that another rate hike tomorrow would be destructive.
But the JD Group said sales at the smaller cash division were up 6.7 percent, with Incredible Connection showing "excellent" top line growth.
The Polish chain Abra also showed "excellent" sales growth.
Jeanine van Zyl, a retail analyst at Old Mutual Investment Group South Africa, believed Incredible Connection had benefited from growing computer sales to the emerging middle class, as well as Christmas sales of new digital gaming products.
Van Zyl said it was likely that that there was no longer massive deflation on electronic products, which had forced retailers to continually undercut each other to make sales.
Indeed the group said the increase in product margin at Hi-Fi Corporation was "most gratifying", but it gave no indication of inflation at any of its divisions in a trading update.
Overall group product sales were down 4.8 percent and consumer finance revenue fell 4.6 percent. Credit chains with entry-level brands, such as Barnetts, fared better than those targeted at middle-income earners, such as Morkels.
Analysts have long argued that consumers in higher-income brackets, with loans for items such as cars and houses, have higher levels of debt to disposable income than those in lower-income brackets.
The JD Group shares lost 1.15 percent to R39.54. The general retailers sector added 0.81 percent.
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