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Same-store sales growth at Truworths slowed sharply in the second half, but the fashion retailer still managed to boost full-year profit, according to Mark Ansley, a portfolio manager at Cadiz.

July 28, 2008

By Tom Robbins

Cape Town – Same-store sales growth at Truworths slowed sharply in the second half, but the fashion retailer still managed to boost full-year profit, according to Mark Ansley, a portfolio manager at Cadiz.

Ansley said on Friday that on a comparable basis, sales at stores open longer than a year had grown by 11 percent in the first half.

But the trading update released by the company on Friday showed full-year sales up by only 6 percent.

This meant second-half sales were “only marginally positive”, Ansley said.

“Taking off store inflation of 6 percent, volumes were probably down.”

The company disclosed both 52-week and 53-week information on sales, as the year to June had one more week than the previous year.

Including the extra week, as well as new stores, sales were up 16 percent to R5.65 billion.

Until May 18 the company had been reporting real growth on a comparative basis.

Sales on the same basis at competitors Foschini and Woolworths clothing have already turned negative. But Mr Price clothing said previously it was reporting volume growth.

Despite the tough retail environment, Truworths managed to increase profit.

Including the extra week, the company said, it expected annual headline earnings per share to be up by between 15 percent and 20 percent.

Ansley said this suggested the retailer was “maintaining or slightly expanding” gross margins – in other words, the margin between purchase prices and selling prices.

It also demonstrated that the firm had halted increases in operating expenditure.

The expansion in the overall operating margin was “a phenomenal performance”, said Ansley. Apart from a disciplined management approach to expenditure, the firm had the flexibility to slow growth in its cost base at short notice, he said.

Truworths said it had increased its trading space by 9 percent.

Truworths shares trading on the JSE fell 2.1 percent to R27.80 on Friday, in line with a 2.06 percent drop to R34.76 in Foschini, the credit retailer and fashion firm. The sector lost 0.75 percent.

Despite the profit boost, Truworths’ growth in headline earnings a share has slowed from the heady levels of last year. Profit, by this measure, was up 33 percent to R2.49 a share last year.

Statistics SA has reported that clothing and footwear sales increased 13.8 percent in the three months to May, including inflation.

But bigger-ticket items have turned negative.

Furniture and appliance sales have been falling since June last year and were down 12 percent in the three months to May, according to Stats SA.

Sales of basic necessities such as groceries have, as expected, proved to be the most resilient in the high interest rate and inflation environment.