Competition is about to heat up in the do-it-yourself (DIY) market as Cashbuild rolls out smaller-format stores in shopping centres and towns.
The building materials retailer that traditionally services contractors and large construction companies will now go after homeowners who want to improve their homes.
“We believe these stores will give us a market we have never traded in before,” operations director Shane Thoresson said yesterday.
With fewer government housing developments and construction projects taking place, retailers of building materials are seeking to increase sales in residential areas that are already established.
Smaller Cashbuild stores would not only compete with Makro’s Massbuild division, but also specialised paint stores, plumbing stores and privately owned hardware outlets.
Despite tough trading conditions, Cashbuild was able to increase revenue by 6 percent to R6.78 billion with a 10 percent rise in gross profit for the year to June. Headline earnings a share grew 11 percent to R11.44.
Thoresson said: “I think the results are reasonable, especially after what we reported at half year. The second half has been encouraging, not so much from the revenue side but certainly from expense and margin management.”
During the past financial year, Cashbuild completed 48 store development projects, including the opening of 15 outlets and the launch of seven DIY stores. Cashbuild hoped to open at least 13 of the DIY stores by December.
“This is the largest capital investment we have made in a single year on store development – it is an important investment in the future of the company,” group chief executive Werner de Jager said.
He added that the launch of the smaller stores would give Cashbuild entry to previously inaccessible markets.
Thoresson said the DIY stores were in the early stages with most of them opened in the last few weeks of the financial year under review.
“It is obviously a model that we are piloting at this stage. We will be taking most of the stores to the shopping centres.”
A number of shopping centres in which Cashbuild’s smaller-format stores traded were in areas where the retailer previously had no presence.
“There are about 2 500 shopping centres around the country and we are in about 10 percent of those centres,” he said.
Thoresson believed that the deterioration of the credit environment had affected Cashbuild’s customers.
The group also had an unsecured lending unit through Nedbank Consumer Credit, which Thoresson said was only 5 percent of the business.
“We have certainly seen a decline of about 20 percent on that part of the business,” Thoresson explained.
The low 1 percent growth in comparable-store sales was a sign of how strained consumers were out there, he said.
Jean Pierre Verster, an equity analyst at 36One Asset Management, said Cashbuild’s results were above expectations and better than the first half. “This annual result implies that the second half was much better than the first [and] the share price has risen because shareholders are relieved at this performance,” he said.
Verster was of the view that the revenue growth of 6 percent came with a higher gross margin and through good cost control plus the benefit of opening new stores, the group was able to grow bottom line profit by 8 percent and headline earnings a share by 11 percent.
“This is a credible performance in this tough trading environment,” he said.
It was a concern that people used unsecured loans to finance their home improvements. “However, Cashbuild results show that the retailer has not been impacted to any significant extent by the fallout in the unsecured market.
“This implies that the typical Cashbuild customer is a cash customer or [one] who is not overindebted,” Verster said.
Cashbuild’s shares added 5.81 percent to close at R137.50 on the JSE yesterday.