Johannesburg - Sales at clothing retailer Truworths have exceeded analysts' expectations, after credit retailers entered the festive season expecting the worst.
On Wednesday morning, Truworths - which owns brands like Identity, YDE and Uzzi - said group sales rose by 9% to R3.4m for the 26 weeks to December 28 compared to the 27 weeks to December 30 2007. Earnings for the period are expected to be between 12% and 17% higher than the same period in 2007.
Every seven years, retailers report an extra week of trade which has a signifant positive impact on profitability, says Coronation Fund Managers' Quinton Ivan. "The majority of costs are incurred monthly, while turnover comes in on a daily basis, so these firms report an extra week of gross profit, but with very little additional costs."
Truworths reported an additional week for the six months to end-December 2007 and is therefore coming off a higher-than-usual base.
Truworths said that if the effect of the additional trading week in the prior period were excluded, group retail sales reflected an increase of 13%, with stores open for longer than a year reporting a 7% sales increase.
Earnings per share are expected to rise by between 20% and 25%.
"These results have exceeded my expectations," said Ivan. "With same-store sales up 7%, this is an indication of good quality turnover. Also, earnings are growing more quickly than the top line [sales]. This could mean there were fewer markdowns as a result of higher sales through rates, an improvement in bad debts or just very good cost control."
Sales update first
Gryphon Asset Management's chief investment officer, Abri du Plessis, said Truworths is "always the one which won't surprise on the negative side... I had expected same-store sales to be flat or be below 5%."
Truworths is the first of South Africa's clothing retailers to provide the market with a sales update. The retailer is respected for making "consistently good calls in managing the risk of fashion" when compared to its peers - Foschini and Woolworths - which translates into consistently higher gross margins, said Ivan.
"With less cash to spend on discretionary items, consumers are more picky with what they spend it on, and Truworths calls fashions correctly," said Ivan.
Du Plessis did not expect either Foschini or Woolworths to better the performance of Truworths: "It's likely we'll see top-line growth of below 10% from Foschini and Woolworths."
Both Ivan and Du Plessis noted that credit retailers had gone into the festive season "expecting the worst" for sales, hence bringing in less merchandise to minimise markdowns in January, which would hurt margins.
By Thursday 10:00, Truworths shares were trading 0.1% lower at 3 540c, while the all-share index was down 1.2% at 20 596 points.
- Fin24.com