Clothing stores do well in tough conditions

Most have fared well when compared to the Retailers Liaison Committee sales growth data, but The Foschini Group (TFG) outshone its competitors this time around, Nedbank Securities analyst Syd Vianello says.

"Against the benchmark TFG performed exceptionally well - way above at 18% growth in sales," Vianello says.

The group managed to tap into the luxury market, grow trading space and lift turnover 18.5% to R5,4bn in the six months to September. The Cape Town-based company, whose units include men's clothing chain Markham, women's clothing chain Foschini and jewellery retailer American Swiss, says headline earnings per share grew 25.6% to 341,9c.

It declared an interim dividend of 190c per share, an increase of 37.7%, compared to the same period last year.

CEO Doug Murray says he is delighted with the group's performance, which was "clearly ahead of the market's performance. Consumers have come under some pressure and as SA is an open market, it is susceptible to international crises. All we can do is offer the customer the best product at the best price."

In contrast, Truworths' sales growth has deteriorated, although its figures are slightly below the Retailers Liaison Committee's figure of 10%, Vianello says.

Truworths International says its retail sales for the first 19 weeks of the 2012 financial year increased 9.3% to R3bn.

The company, whose brands include Truworths, YDE, Identity and Uzzi, says same-store retail sales rose 4.7% and product inflation averaged 8% from 27 June to 6 November. Credit sales made up 73% of retail sales, compared with 71% in the previous financial year.

Vianello says Edcon has performed well, while Mr Price has delivered a steady performance. "Mr Price have said October sales are significantly ahead of last year's, but comparing the six months ending September they have traded in line with the benchmark."

Mr Price's apparel margins have possibly reached their peak but there is room to grow in the homeware category.

Mr Price's overall retail sales increased 10.7% to R5,3bn compared to its first half of last year. Excluding new shops, sales in likefor-like locations were up 9.6%.

"Sales growth was impacted by the high base set by the extended school holidays associated with the Fifa World Cup, which took place in June and July last year. Excluding these two months, sales growth amounted to 14.3%," CEO Stuart Bird says.

"In the coming months consumers will come under pressure with higher utility costs and rising fuel costs," Vianello says.

"The weakening rand will push clothing prices higher, creating an environment for cash retailers such as Mr Price to perform better. There are already signs that consumers have been down-trading and buying fewer items.

"Woolworths are due to release a trading update soon which will give us a better indication of their performance, but taking the year- ending-June results into account they are on track but have not necessarily improved greatly," Vianello says.

Woolworths CEO Ian Moir says better offshore sourcing and better negotiations helped increase turnover 9.4% to R25,8bn in the year ended 26 June.

"We saw significant improvement in profitability across all categories," he says. During the course of the year, sales grew 10% (2010: 7.9%). Clothing and general merchandise sales grew 8.6% (2010: 7.3%). Clothing and footwear sales in SA performed particularly well, increasing 11.5%.

At the time, Avior Research analyst Simone Kruger said that Woolworths and The Foschini Group had performed better than Truworths. "This may indicate that Truworths did not have as much success with merchandise choice. But they have a stable business model and an experienced management team, which should see them through," she said.

"Markdowns will be crucial after the Christmas period. If they can manage stock well, they can still do well," Kruger said.

Absa Securities analyst Chris Gilmour says Woolworths is regaining its darling status. "There is still space to grow and work on the financial services and clothing categories. However, there is nothing bad about this result. All indications are it is not a flash in the pan."

Source: Business Day