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Truworths results expected to show consumers under pressure
Truworths results expected to show consumers under pressure

Truworths results expected to show consumers under pressure

RETAILER NEWS - Aug 20th 2014, 10:08

The plight of SA’s indebted consumers will likely be reflected when clothing retailer Truworths reports its full-year results on Thursday. 

Ever-escalating living costs and a debt overhang caused by the glut of unsecured credit have curbed spending, with customers struggling to pay store accounts.

Truworths and rival The Foschini Group (TFG), to manage their books through the tough credit cycle and prevent impairment rates going any higher, have put in place stricter lending criteria. This has led to fewer store accounts being opened — a key driver in both businesses.

With about 71% of sales on credit, Truworths last month indicated slower growth than expected as well as declining volumes.

The retailer, which has brands like LTD and Daniel Hechter, said retail sales for the 52 weeks to June 29 increased 6.8% to R10.8bn, compared with an 11% increase in the year-earlier period.

Credit sales rose 5%, from growth of 9% previously, highlighting the constrained environment.

Product inflation averaged 9%, and the group continued to expand aggressively with trading space increasing 10.3% relative to the prior corresponding period-end.

For the 52 weeks ended June 29, the I-Net Bridge consensus forecast is for diluted headline earnings per share of 573.1c and a dividend of 373.7c per share.

With higher price points, the company is under pressure as Woolworths, with its tiered offering, and Australia’s Cotton On increasingly attract price-conscious customers.

Meanwhile, TFG is slowly shedding its cloth as a mass-market credit retailer as it aims for a 50-50 split between credit and cash sales.

The shift is intended to render the group more defensive in formidable credit cycles, such as SA is in now, by reducing the effect of card defaults.

It will also allow the group to benefit from rising interest income and an upsurge in customers when a cycle turns.

Customers who shop at the company’s more upmarket outlets, like Due South and Totalsports, which are growing faster than its more credit-orientated and value brands, tend to spend cash.

According to Trans-Union‚ SA’s largest credit bureau‚ 47% or 2.7-million credit-active South African women are in arrears with their clothing accounts.From DFM Publishers (Pty) Ltd 

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