Truworths reports a decline in sales

Truworths interim results for 2012, showed a 9% decline in the top line to $12.5 million attributable to lower discretionary incomes in November and December due to late payment of civil servant bonuses and slower impetus in sales as the credit period remained fixed at six months. The gross profit thus declined 13% to $6.2 million through a toughened drive to increase merchandise sales by carrying out loyalty promotions (1.1% of turnover against 0.2% for H1 2011) and increased merchandise promotional activities at 2.9% of turnover compared 1.3% for the prior period (SA comparable 15% of turnover).

The trading margin including factory stood at 8.4% (H1 2011 17.4%) as occupancy costs and trade receivable costs went up by 13% and 8% respectively. The growth in trade receivables costs was due to an increase in net bad debt (up 1.2% as a percentage of gross trade receivables and credit sales) as during the previous period the book was still fairly new while occupancy costs were driven by the opening of two additional Number 1 stores and basic rentals going up 31% as bases were adjusted upwards (still in arbitration). Net finance costs at $69,818 however still reflect a strong net interest cover at 15.7x (H1 2011: 15.5x). Culminating from this the PBT for the period stood at $944,236 whilst the bottomline amounted to $698,000.

The balance sheet showed a 61% 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. The group increased its doubtful debt allowance as a percentage of gross trade receivables to 5.2% from 2.4%, while the continued lack of a credit bureau has necessitated stricter approval of new accounts. The gearing ratio however remained high at 145% (H1 2011: 181%) on $5.9m borrowings. The cash flow statement however shows that the group has started generating positive operating cashflows as net investment in working capital continues to decline. A major refurbishment estimated to cost approximately $420/m2 is expected to be carried out at one of the group's key Truworths branches, whilst an additional Number 1 store is set to be opened during H2 2012.

Sales participation by chain show that there was a decline in Truworths contribution from 36% to 34%, Topics was unchanged at 55% whilst Number 1 contribution grew to 11% from 9% the prior period. Number 1's comparable store increase in the sale of merchandise was 5% up over the prior period and up 7% on a comparable 26 week period. Lack of long term finance and uncertainties in the economy are likely to continue constraining growth in the short term while in the long term, opportunities for growth should come from an improvement in incomes, employment and credit terms.