Truworths earnings slump

a 9 percent decline in turnover to US$12,4 million, attributed to lower discretionary incomes in November and December last year. Trading expenses stood at US$5,1 million, driven by employment costs coming in at US$1,7 million, followed by occupancy costs and other operating expenses chewing up US$1,5 million.
In a statement for the financial period, Truworths chief executive Mr Themba Ndebele said during the six months under review, merchandise sales were down 10 percent on the comparable period.
Last year’s sales were largely influenced by the introduction of six months credit in August, which led to a surge in sales was not repeated in the reporting period.
“Lower discretionary incomes in November and December had a negative impact on merchandise sales,” said Mr Ndebele.
During the period the number of accounts increased 26 percent over the comparative period and 87 percent of the account holders made purchases.
Gross profit margins for the group was down to 51,2 percent compared with about 63 percent recorded over the same period last year. Gross profit for the group stood at US$6,1 million and was chewed up by operational costs.
The group’s balance sheet showed a 61 percent growth in inventory due to a change in the inventory mix, with a higher proportion of higher value items and stocking up for the upcoming winter.
Truworths increased its doubtful debt allowance as a percentage of gross trade receivables to 5,2 percent from 2,4 percent, while the continued lack of a credit bureau has necessitated stricter approval of new accounts. Analysts yesterday said clothing retail counters would continue to experience reduced margins as most people who had opened accounts have since reduced their buying appetite.
“When credit facilities opened, customers were spending and after the first six months they are no longer buying the way they used to buy. We are likely to see this trend, given low disposable incomes in the market,” said an analyst.
Sales participation by the chain shows that there was a decline in Truworths’ contribution from 36 percent to 34 percent, Topics was unchanged at 55 percent while Number 1 contribution grew to 11 percent from 9 percent in the prior period. Continued liquidity pressures on the market and low disposable incomes will continue to put pressure on margins and have the potential of a negative impact on trading.
Lack of long-term finance and uncertainties in the economy are likely to continue affecting growth in the short term while in the long term, opportunities for growth should come from an improvement in incomes, employment and credit terms.
Going forward, a major refurbishment is expected to be carried out at some of the group’s key branches, while an additional Number 1 Store is set to be opened during the second half of the year.