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Fashion retailer Truworths has bucked the declining clothing sales trend, squeezing out real growth in volume sales and lifting its share price nearly 6 percent on Friday.

January 21, 2008

By Tom Robbins

Cape Town – Fashion retailer Truworths has bucked the declining clothing sales trend, squeezing out real growth in volume sales and lifting its share price nearly 6 percent on Friday.

The company said last week that sales at stores open longer than a year rose 7 percent from a year earlier in the 26 weeks to December 23. Store inflation was 6 percent, indicating real growth of 1 percent.

Sales growth was sustained at the same level as announced in the previous trading update in early November.

Earlier this month Truworths’ bigger rival Foschini reported a real same-store decline of 2.6 percent in the three months to December. Clothing sales at Woolworths and Mr Price have also gone backwards.

Ruben Beelders, a portfolio manager at Gryphon Asset Management, said Truworths was the standout retailer of the festive season, considering the sharp slowdown in discretionary consumer spending. “They consistently have the right product at the right price.”

In the 27 weeks to December 30, sales including new stores rose 20 percent to R3.02 billion. But the corresponding period in 2006 was one week shorter.

Despite a 4 percentage point increase in interest rates over the past 19 months, the group has continued with an aggressive store expansion plan.

It grew trading space by 12 percent last year, adding stores to its Truworths, Identity, YDE and Uzzi chains.

Traditionally, cash retailers such as Mr Price have the steadiest sales performance when consumers are overextended, though Truworths said growth had been hampered by stricter lending criteria under the National Credit Act (NCA), as well as higher interest rates.

Truworths described the trading environment as “challenging”, but said earnings a share in the 26-week period would still rise between 15 percent and 20 percent.

It warned that bad debts had increased and remained at the upper end of expectations.

But this had been “substantially offset” by the higher interest rate it had been able to charge since the implementation of the NCA in June.

Despite record household debt, furniture chain JD Group was the only retailer to report a significant profit fall last year.

All eyes will be on JD Group’s better performing rival Lewis for a barometer of how effectively these firms can wring out profits in testing times.

Truworths shares rose 5.9 percent to R26.74 on Friday. The general retailers sector fell 0.16 percent.