Truworths returns to profitability

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Kudzanai Sharara
A reduction in mark down activities saw Truworths Limited return to profitability for the 26 weeks to 7 January 2018. The group reported a profit for the period of $548 095 up from a loss of $986 888 prior year comparative.

According to chief executive officer Themba Ndebele, the reporting period had seen gross profit margins increase to 50,5 percent from 38,1 percent on the back of reduced mark down activity compared to what happened prior year comparative. An operating profit margin of 11,6 percent (2017: loss margin -20,2 percent) was achieved for the period.

Ndebele said the growth in profit margins was because there was less markdown activity in the period under review.

“In the previous year because of the collapse in demand we found ourselves carrying a lot of stock and in the fashion game you can’t move with a lot of stock from one season into another season.

“So we had to discount product so that we remain fashionable and relevant. In this half we didn’t effect mark down so our margins went up and are back above 50 percent,” said Ndebele.

He explained that whenever there is a sale sign in a retail store it means merchandise is not moving and there is need to compromise margins hence the mark downs.

The period under review, however, experienced increased demand and there was no need for mark downs.

The group’s merchandise sales were up  9,3 percent to $7,140 million with Truworths chain recording a 18,6 percent growth in sales while Topics and Number 1 stores saw sales grow by 4,3 percent and 24,3 percent                                                                                     respectively.

Ndebele said Number 1 was now structured in a way that will allow it to grow its revenue by another 50 percent without any increase in the cost base.

In the period under review, the group closed 6 Number 1 stores or reduced costs for the chain by 26 percent but still managed to grow sales by 24 percent.

Ndebele said the other biggest highlight for the period under review was the income the group received from credit card related sales which contributed $306 229 up from $60 243 prior year comparative.

“We’re now receiving income from the credit cards because we originate the debt and we manage the debtors. So whatever the closing balance is at a particular period, we’re actually getting that as commission, because we don’t get interest on part of that book.

“It’s a permanent income, it’s part of our business and its going to remain with us,” he said.

Ndebele said the group had recorded another turnaround at its factory business where he said the business had done a lot of third party business which is growing.

On the debtors book, Ndebele said poor collections in the comparative prior year had resulted in some costs not being recovered, particularly the debt collection costs, and in the process pushing up trade receivables.

This, he said, had improved in the period under review and trade receivables costs had come down.

Ndebele said the group had seen a change in the sales mix in the period under review with a bias towards clothing merchandise, away from the homeware range which had dominated sales during the difficult period of 2016.

He said, homeware products had lower margins of around 33 percent than the clothing range where margins were above 50 percent.

Ndebele said to manage the mix, the group was now managing the homeware range at price points to make sure that customer spend is on the clothing range where there are higher margins.

“We are still selling your electric jug and cellphones but at lower price points. The lifestyle business works when people have lots of disposable incomes.”

In the short term Ndebele said the group was expecting foreign currency challenges to continue with some stores already experiencing stock outs in certain lines.

In the long term Ndebele was hopeful and looking forward to better things after elections saying the retail sector would be the first to benefit from any economic recovery.

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