JOHANNESBURG - TRUWORTHS rallied 14.89 percent to R41.50 a share at the close on the JSE yesterday, pulling its peers The Foschini Group (TFG) and Mr Price higher following a better than expected business update published last week.
TFG rose 5.14 percent to R102.23, and Mr Price jumped 1.67 percent to R165.50, while Woolworths inched up a marginal 1.37 percent to R39.28 a share.
Truworths surged as investors focused on the positive aspects of the business update released late on Friday in which the group said it was surviving Covid-19.
The group reported a 8.5 percent decline in retail sales for the 26-week period ended December 27, 2020, to R9.7 billion relative to the R10.6bn during the comparative prior period.
“While there have not been any further hard lockdown restrictions in South Africa since the group was allowed to reopen its stores in May 2020, consumer spending remains subdued in the wake of the ongoing economic crisis resulting from the severe negative impact of the pandemic, and generally depressed economic conditions,” Truworths said.
“In the UK, trading conditions have been exceptionally challenging amidst Brexit uncertainty, with the group’s stores having to close from November 5, 2020, to December 2, 2020, except for ‘click & collect’ orders as all non-essential retail activity was suspended in an attempt to curb the spread of the virus.”
Portfolio manager at Vestact Asset Management, Michael Treherne, said the drop in sales and profits was smaller than expected, which spelled good news for the group.
Treherne said the group also benefited from the bad debt figure that had decreased over the quarter which gave investors a huge boost.
"There is a worry that with the current lack of economic growth, the opposite might have happened,“Treherne said.
”More than half of Truworths sales come from account sales, so they are very exposed to customers defaulting.”
Group sales were down from 52 percent a year earlier, with account sales decreasing by 10.3 percent and cash sales decreasing by 6.5 percent, relative to the prior period.
The group said Truworths Africa debtors’ book relating to the Truworths, Identity and YDE businesses was at R5.8bn from R6.8bn a year earlier, while the number of active accounts decreased by 6 percent to 2.6 million.
However, Truworths’ UK business Office was a drag on the business.
Retail sales for the Office segment fell 24.6 percent in sterling terms to £114m (R2.36bn relative to the prior period’s £151m. In rand terms, retail sales for Office fell 13.3 percent to R2.4bn.
“That asset has been largely written off now and is showing great growth in online sales,” Treherne said.
“I remember not so long ago when the jewel for Truworths was the UK asset. It shows how things can change and how different regions move in cycles.” Treherne said the retail space was very tightly linked to South Africa’s GDP growth.
Treherne said South Africa would also have to contend with loadshedding that would dampen retail sales.
“A tailwind for the sector might come due to consumers having more disposable income from spending less on travel costs. The retail sector looks a bit on the expensive side at the moment, which will be a problem if we don’t see a big rebound in GDP growth,” said Treherne.
BUSINESS REPORT