Nompumelelo Magwaza

Truworths declined 74 percent of new account applications during the six months to December last year, the fashion retailer said yesterday, further exacerbating concerns that the credit environment in the country is deteriorating.

“Our customer is part of the mass middle market that relies on credit. It is currently a particularly tough environment for retail credit, with 71 percent of our sales being on credit,” Truworths chief executive Michael Mark said.

The retailer said the continuing deterioration in the credit environment had affected its interim results, as retail sales rose by 7 percent to R5.9 billion compared with 14.8 percent growth a year earlier.

Credit sales accounted for about 71 percent of retail sales, from 72 percent previously. Interim profit was flat at R1.9bn and operating margins dropped to 33.8 percent.

“Our performance for the six months was impacted by slower-than-expected sales growth and a 40 percent increase in debtor costs, resulting in disappointing earnings growth,” Mark said.

Gross receivables grew by 9 percent to R4.9bn.

“As anticipated by management, the continuing tough credit environment and the group’s restrictive credit-granting criteria have limited new account growth,” Truworths confirmed.

New account acceptance rates fell from 35 percent in the previous period to 26 percent.

Simon Anderssen, an investment analyst at Kagiso Asset Management, said value retailers like Mr Price were likely to perform best as consumers were shopping down and the increase in competition was concentrated in the middle- to upper-income market.

The shares rose 0.46 percent to close at R68 yesterday.