Stretched consumers knock JD Group
November 5, 2009
By Thabiso Mochiko
JD Group's earnings and headline earnings a share for the year to August were expected to be between 80 percent and 90 percent lower than the previous year, the furniture retailer said yesterday.
High interest rates have dampened retailers' sales over the past few years. However, JD Group, which owns Joshua Doore, blamed the lower earnings on a tax settlement of R338 million.
If the tax settlement and restructuring expenses, which together totalled R409m, were disregarded, the earnings and headline earnings a share for the full year to August would have been only about 5 percent down, the group said.
JD Group incurred once-off restructuring expenses of R84m in the first six months to February, and a further R14m in the second half to August.
The group expected operating profit before restructuring expenses, debtors' costs, net finance costs and taxation for the year to August to rise by as much as 12 percent over the previous year.
Debtors' costs were likely to be between 20 percent and 25 percent higher than last year.
"The business continues to suffer from the effects of an over-indebted customer base," it said.
Other assets in JD Group's stable include the Hi-Fi Corporation and Incredible Connection chains of stores.
Godwill Chahwahwa, a fund manager at Coronation Fund Managers, said the trading update was slightly behind expectations because of bad debts, which were set to rise between 20 percent and 25 percent.
"Its sound like things are still tough for lenders like JD Group and the consumer remains under some strain from high levels of indebtedness.
"The bad debt charge continues to be high in this environment," he said.
However, he said that the company was doing all the right things by restructuring the business and positioning for a recovery and the benefits of these efforts would be seen in the future.
Another analyst, who did not want to be named, said what would be more important when the company announced its results would be whether sales levels were improving.
"The tax settlement and bad debts issues are nothing new. JD Group has already cautioned the market about that.
"What we want to know is: are we going to see better Christmas sales," he said.
He added that the increase in bad debts showed that consumers were still struggling, but that was not surprising.
The company will announce its results on November 16.
JD Group's share price fell 4.1 percent to close at R40.49.
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