Truworths shares dive on downbeat sales update
The fashion retailer cites an increasingly tough retail market.
Investors gave the shares of Truworths International a dressing down on Thursday as they fretted about the fashion retailer’s bearish sales update showing that it’s feeling the pinch from South Africa’s tough retail landscape.
Truworths’ share price dived by 7.8% during morning trade after it said that sales for its first 18 weeks to October 30 declined by 1% to R4.4 billion compared with growth of 16% last year.
These estimates exclude its UK fashion footwear chain Office Retail Group, which Truworths acquired in 2015 for £256 million – marking its foray into the region.
The pressure point for the retail is on its like-for-like sales which decreased by 5%.
Fashion retailers have been on the back foot as there are few signs that there will be a revival spending by hard-pressed consumers. The sustained rise in inflation, interest rates and living costs, is leaving little room for non-essential and discretionary-like purchases (including apparel), prompting consumers to prioritise the spend on food.
Factoring in sales from the Office business, Truworths’ group sales grew by 39% to R6.2 billion – indicative of its UK business being a boon for the retailer.
Office recorded retail sales for the period under review of £97.3 million (R1.8 billion in rand terms), up 1.4% relative to the prior period’s £95.9 million.
Truworths, traditionally a credit-based retailer, saw its credit sales decrease by 1% and cash sales grew by 130%. Credit sales comprised 49% of Truworths’ retail sales and 70% excluding its Office business.
Truworths’ credit sales have been under pressure since it began to implement the National Credit Regulator’s (NCR) new affordability assessments in 2015 – intended to manage the risk of issuing credit to ensure that consumers are not over-indebted through unaffordable credit agreements.
The NCR deems the regulations as necessary to ensure that reckless lending is avoided while Truworths, Mr Price and The Foschini Group (TFG) have deemed them onerous.
One of the ways of appealing to a broad range of consumers with different affordability profiles is to contain selling price inflation. Truworths’ product inflation averaged 16%. Other fashion retailers such as Woolworths, Mr Price and TFG have kept their inflation below 10% to grow their market share and get shoppers into their stores.
Truworths – with brands such as LTD, Daniel Hechter, The Young Designers Emporium, Inwear, Identity and others – has been widely criticised for its narrow pricing methods and having limited options for consumers wanting cheaper apparel. This while its competitors such as Mr Price, Woolworths, TFG – and international retailers Cotton On, Zara and recently H&M – have been aggressive in their wide price offerings and discounting their merchandise during the recent winter season.
Truworths’ results for the 26-weeks to December 2016 will be released in February 2017.