Clothing retail group Truworths lifted headline earnings per share by 29% from 144,8 cents to 186,4 cents for the 52 weeks ended June 25 2006.
This was on the back of a 23% growth in merchandise sales, which increased from R3,1-billion to R3,8-billion.
The group declared a final dividend of 45 cents per share, bringing the total dividend for the year to 89 cents per share — 29% more than the 69 cents declared for the previous trading year. Dividend cover remains at 2,1 times headline earnings.
The group said results were achieved on the back of healthy economic fundamentals, including robust consumer confidence and a strong demand for consumer goods driven by increased disposable incomes.
“Truworths’ formula of continual reinvention of its core business proved to be a successful foundation for growth as in the past,” it stated.
Sales growth included comparable store sales growth of 16% with product inflation of approximately 1%. Trading space increased by 11% through the opening of 13 Truworths and 19 Identity stores.
All merchandise departments performed ahead of budget expectations and Young Designers’ Emporium (YDE) achieved agency sales of R166-million, an improvement of 11%.
“The group’s performance reflects the focus on incentivising people to deliver, developing new initiatives and formats, improving efficiencies through appropriately targeted spending and increased productivity, increasing trading space and ongoing development of brand integrity,” Truworths said.
The operating margin grew to 33%, with gains in market share and productivity in terms of sales per square metre and per full-time employee. Operating profit improved by 27% to R1,244-billion. Expenses as a percentage of sales reduced to 29% from 30%. The gross margin was 54%, in line with that for 2005.
“The group continued to apply strict criteria for credit granting and yet managed to achieve solid growth in new customer accounts and in the active account base, which now approximates 1,3-million customers. Credit sales represent 74% of total retail sales, in line with the prior period. The number of accounts able to purchase was maintained at 87%.
“The quality of the debtors’ book remains high and compares well with sector benchmarks, notwithstanding marginally deteriorating delinquency and net bad debt. These indicators are in line with management expectations and have been adequately provided for,” the group said.
The group remains in a solid cash position, with cash and cash equivalents amounting to R219-million at period-end.
Looking ahead, Truworths said that group sales of merchandise for the first eight weeks of the new financial period are comfortably ahead of budget and reflected in more than 20% growth on the prior period.
“With the further expansion of trading space, market-share gains and continued emphasis on the fashionability of merchandise, management is confident that trading for the period will yield positive growth.
“Notwithstanding the possible effects of changes to the retail environment resulting from possible further increases in interest rates, rising inflation and higher levels of consumer debt, management’s primary goal will be to continue to procure the right merchandise at the right price to attract the growing market of fashion-conscious consumers,” the group said.
Referring to a recently announced bilateral agreement to limit clothing and related imports from China, the group noted that, to date, details of this agreement have yet to be made public.
“But the group observes that the authorities have embarked on this course of action without consulting major clothing retailers. The impact on product inflation could be significant and the agreement may have unintended consequences, especially for consumers, if the implications of restricted imports are not carefully considered,” it cautioned.
“However, the group is positioning itself to deal with the attendant uncertainties, given that it imports about a third of its garments. Management has the ability to procure product from alternative sources albeit at higher prices,” Truworths added. — I-Net Bridge