Green shoots at Foschini

Johannesburg - Foschini's plans to open 120 new stores this financial year may be a sign that the economy is starting to pick up speed, analysts say.

Like some other retailers, the group has reported a sales upturn in recent months.

Foschini's turnover rose by 5.5% to R8.1bn for the year to end-March 2009, with the bulk of growth (7.9%) coming from the second half of the year. Foschini said Christmas trading was above expectation and markdowns supported sales.

Its annual diluted headline earnings per share rose by 2.8% to 553c, after falling in the first half of the year.

"I don't think it was an exceptional performance at all," said Jeanine van Zyl, analyst at Old Mutual Investment Group SA (Omigsa). She pointed to Mr Price which "blew the lights out" with a profit increase of 16% to R827m for the year to end-March 2009.

Although the group plans to open fewer stores this financial year (120) than the previous year's 154, analysts say it remains a heartening development.

"This suggests that the credit circle has begun to turn," said Chris Gilmour of Absa Private Client Asset Management.

Van Zyl added the group may benefit from cheaper trading space because of the recession, while funding the expansion won't be a problem.

"Foschini certainly believes in the economy of the country and has a fine balance sheet, making it able to afford the new stores," said Gilmour.

Gilmour says it's interesting to note Foschini's trading uptick in the second half of the year, as furniture retailers Lewis and JD Group also made the same observation in their results.

"Remember, this was after repo rates cuts of 250 basis points."

Thursday's rate cut of an additional 100 basis points should further assist highly-indebted consumers.

- Fin24.com