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Truworths ‘misread trends’ says analyst
Truworths ‘misread trends’ says analyst

Truworths ‘misread trends’ says analyst

FMCG SUPPLIER NEWS

BDlive.co.za - Aug 16th 2012, 10:01

The latest figures from retailer Truworths indicate that the group has misread the fashion trends and lost out to Spanish chain Zara, an analyst said yesterday.
 

"I think their customers have deserted them to an extent and gone to Zara. Obviously The Foschini Group probably lost a few customers … ultimately everybody loses. But Truworths, being a fast-fashion conscious business, has probably lost a bigger percentage than other people," Nedbank Securities retail analyst Syd Vianello said.

Zara, owned by Inditex, the world’s biggest fashion retailer, opened its doors in SA late last year. UK fashion brands Topshop and Topman are due to set up shop in SA in November.

"Zara has just two stores, but every competitor is a competitor. It’s opening a third store in Cape Town. Every new store takes another slug of turnover out of the market. Topshop won’t settle with just one store and their price points are going to be competitive," Mr Vianello said.

Truworths CEO Michael Mark seems to have taken the advent of international retailers in his stride.

"They don’t arrive with hundreds of stores in one day; they come over time and then it’s just part of the competitive landscape," he said.

The company, which sells Truworths, Daniel Hechter, LTD and Ginger Mary clothing lines, reported a 16% rise in full-year profit in what it described as a highly competitive and challenging retail environment.

Truworths said diluted headline earnings per share were at 517.1c for the 53 weeks to June, from 447.5c.

"Retail sales increased by 12.7% to R9.1bn while comparable store retail sales grew by 8.4%," it said.

The company’s Identity brand came to the rescue again — turnover increased 25% to R1.4bn.

According to Mr Vianello, the group’s results were "poor".

"At the end of the day the earnings growth came from pushing the credit and collecting interest income on the book. Trading profit before interest income is only up 6% on a 52-week basis. Relative to what the company has delivered in the past, there are clearly some issues. You can’t carry on pushing credit forever and ever," he noted.

Credit sales accounted for 73% of the company’s retail sales, from 71% last year. Net bad debt as a percentage of gross trade receivables moved from 6.8% to 7.9%, with the doubtful debt allowance increasing from 10.1% to 10.6%.

Mr Vianello said Truworths had been the most successful fashion retailer in SA by far, with the best margins, and seemingly nothing had ever gone bad for them. "What these results prove is that nobody is infallible," he said.

Mr Mark said generally subdued economic growth was expected in the months ahead 

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