Truworths wades into devaluation debate

05 Oct, 2018 - 00:10 0 Views
Truworths wades into devaluation debate

eBusiness Weekly

Tawanda Musarurwa and Enacy Mapakame
A number of Zimbabwean economic players have called for currency devaluation, with some pressing for “steep devaluation” of between 50 percent and 60 percent.

Devaluation basically refers to the decision to reduce the value of a currency in a fixed exchange rate.

This means, for instance, that for locals, imports and foreign travel become more expensive, but domestic exports will benefit from their exports becoming cheaper, and hence become more competitive in regional and international trade.

But clothing retailer Truworths chief executive officer Themba Ndebele, has gone further to argue that the implementation of sustainable devaluation should necessarily be backed by balance-of-payments (BOP) support.

“Devaluation without balance of payment support, or without any foreign backing cannot work. Because you can devalue now and begin a new chapter, but you can’t keep devaluing every month. What stops devaluation on a daily basis is foreign currency in-flows.

“Whether you have got your own currency or not, you need an injection of US dollars, or US dollar support in this country,” said Ndebele.

“We are hoping that we can achieve macro-economic stability at some stage. The difference between 2008 and now is that back then there was no private sector debt in US dollars. So the question is who is going to take the haircut. But before we get to the haircut, there is need to address the fiscal deficit.”

To the extent of Zimbabwe’s need to be able to get US dollar support for the economy, experts say ongoing re-engagement measures with multinational financial institutions is critical.

Liquidity shortages negatively affected the country’s BOP position. Official figures show that in 2016, Zimbabwe experienced net outflows of portfolio investment and other long-term capital, excluding foreign direct investment.

This marked a dramatic reversal from the previous year, when Zimbabwe recorded a $650 million inflow.

By end  of 2016, gross international reserves had fallen to $310 million, or just over two weeks of import cover an inadequate buffer against a contraction in net capital inflows equal to 5 percentage points of gross domestic product (GDP).

Truworths sidesteps macro-economic challenges
Meanwhile, the listed clothing retailer outlined a positive set of financials for the year ended July 8, 2018.

Revenue for the period under review amounted to $16 million, which was 9 percent above prior year’s $14 million.

An operating profit of $2 million was achieved in the period compared to a loss position of $1,2 million recorded during the same comparable period.

During the period under review, retail merchandise sales increased to $13,4 million from $12,2 million.

Ndebele said the group modified its credit offering for the home and living and homeware products on the back of high price points as well as limited consumer spending power hence limited credit.

“More credit was available to the core business that is apparel, which has lower price points and high margins,” he said.

The group managed to control credit sales through consistent account assessment risk criteria as well as improved collections which resulted in an increase in number of accounts able to make purchases.

At period end 71,5 percent compared to 66,9 percent in 2017, of the group’s account holders were able to make purchases.

The number of accounts increased by 3,1 percent over the prior period to 91 745, and of these 13 744 had signed up for the Instore Credit Card at period end.

For Truworths, apparel grew 25,3 percent while Topics and Number One grew 27,5 percent and 20,3 percent respectively.

A gross profit margin of 50 percent was achieved, an improvement from 40,2 percent on increased sales at full margin and no markdown compared to a markdown of 13 percent of sales in the prior period and a change in sales mix in favour of apparel.

Trading expenses went down 6 percent despite increase in employment costs.

A profit after tax of $0,8 million was achieved from a loss position of $1,7 million. Basic earnings per share improved to 0,21 cents from basic loss per share of 0,47 cents.

Ndebele said the group would cushion itself in the wake of foreign currency shortages that are likely to continue and pose a challenge to product availability as well as affect product supply and sales.

On the other hand, the resurgent inflationary pressures will negatively affect consumer disposable incomes and confidence.

The group did not declare a dividend to preserve capital.

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