Clothing and apparel retailer Truworths expects the projected easing in monetary policy to boost its credit accounts and breathe impetus into consumer disposable incomes.
After facing a challenging full year to June 30, 2024, Truworths expects headline earnings per share for the season to weaken – by between 5% and 9% – to between 795 cents and 830 cents. During the period, Truworths focused on containing costs and preserving its profit margins.
Despite the expected plunge in earnings, Truworths said it was “encouraged by early indicators that will support the positive trajectory of consumer confidence” in the year ahead.
“Monetary policy easing will contribute to improved credit demand and affordability, while prospects of higher growth and lower inflation are expected to boost consumer disposable income and spending in the medium term,” said the company.
Although the demand for Truworths’ credit remained high at a time it was continuing to grow the number of active accounts, credit usage by consumers had been “suppressed in the high interest rate and low consumer confidence and disposable income” environment.
During the year, account sales for Truworths South Africa decreased by 2.5% while making up 70% of the segment’s retail sales. Cash sales for the period decreased by 4.7%.
“The group maintained a strong focus on preserving gross profit margin and containing costs, in an environment where Truworths Africa’s like-for-like store retail sales decreased by 6.1% (2023: 4.4% increase) and trading space increased by 0.9% (2023: 1.4% increase), relative to the prior period,” it further explained.
The company’s retail selling price inflation averaged 6.4% for the current period against 12.6% inflation in 2023.
According to Truworths, South Africa’s retail sector is battling a “challenging macro environment characterised by weak economic growth, high interest rates, muted real wage growth, high utility and transport costs, and high levels” of unemployment.
These challenges were exerting pressure on discretionary spend as well as persistently low consumer confidence, which, however, had started to improve.
“Port congestion challenges in South Africa and global shipping disruption impacted optimum inventory levels and merchandise mix from November 2023 and into the early months of the winter 2024 season,” said Truworths.
Moreover, the late onset of winter in South Africa in 2024 characterised by unseasonably warm weather stretching into late May had dampened demand for winter merchandise, consequently impacting retail sales, especially in the last quarter of the year under review.
Truworths retail sales in the Office UK segment increased by 10.8% compared to prior year. In rand terms, the UK Office retail sales increased by 21.8% to R6.8 billion on the back of a stronger performance in the first half of the year under review.
Truworths said consumer spending in the United Kingdom remains under pressure as a result of the decline in real disposable income that consumers have experienced since 2021, combined with relatively high interest rates and modest economic growth.
Despite challenges in the macro environment, the branded fashion footwear sold by Office UK “proved to be comparatively resilient”.
The Office UK segment also continues to benefit from its unique market positioning, brand partnerships and strong online presence, said the company, with online sales contributing about 46% of the segment’s retail sales.
BUSINESS REPORT