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Johannesburg - In an update issued on Thursday, clothing retailer Truworths [JSE: TRU] indicated a sales drop as a result of the challenging trading environment.
Sales for the first 17 weeks of the 2018 financial period, between July 3 and October 29, fell by 3% to R5.5bn, compared to the same period last year when sales came to R5.7bn.
Adjusting for the 53rd week included in the last financial year (2017), retail sales effectively dropped 2%.
Account and cash sales, which each constitute 50% of total sales, both decreased 3% compared to the previous period.
Retail sales, excluding the office, decreased 2% to R4bn, compared to the previous period’s R4.1bn. More than two-thirds (69%) of these sales are account sales. Trading space increased by 3% and is expected to remain at this level for the remainder of the financial year.
Sales of the UK chain office were unchanged at £89m (R1.6bn). Trading space increased by 1% and is expected to increase by 2% for the remainder of the financial year.
In a note to shareholders, Truworths said that it would continue to “apply strategies” to ensure the ongoing health of the portfolio.
“Although the trading environment is expected to remain challenging, the group will continue to utilise its extensive experience to manage the risk of fashion through its proven merchandise design and buying processes and manage the risk of the book.”
The share price opened at R78, but fell as low as R74.76 following the release of the sales update. By 10:23 the share was trading at R73.53, before adjusting to R74.80 by 12:30.
In a report on the retail sector, released last week by EY for the first half of the year, analysts observed that there had been an uptick in the retail sector for the first half of the year, but fashion retailers were under pressure.
Return on equity for fashion retailers specifically was down 8.3%, reflecting the pressures of consumers and the weak economy, explained Africa analyst Graham Thompson.
During the period, Stuttafords “folded”, reflecting the weak economic environment and the “global demise” of the department store, he said. Local fashion retailers also exited the high-end product markets as they had not brought the returns that were expected.
On the flip side, strong global competitors have been entering the local space and have targeted the middle and lower end of the market, he explained.
Derek Engelbrecht, consumer products and retail sector leader, shared the view that local fashion retailers are under pressure by large multinationals which have now become household names. “These multinationals are here to stay for the long run,” he said.
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