RETAILING: Foschini Experiences Positive Sentiment
Recent Western Cape Business News
Cape Town's Foschini Group stayed on track in the past year, despite the tough economic times, and delivered retail turnover up 6,4% to R8,6-billion for the year ended 31 March 2010.
The mass market retailer reports that the past year was extremely volatile and difficult, with consumer spending worsening during the second half of the year which, because of Christmas, is usually its best trading season.
But, while it generally expected the tough trading environment to continue, it says the past 8 weeks’ trading showed an ‘encouraging’ upward shift in consumer spending.
Doug Murray, Foschini Group CEO, said the “the soccer world cup which gets underway in a few weeks should create more positive consumer sentiment which together with the reduced interest rate and inflationary environment should improve consumer spending. However, unemployment in our economy remains a potential risk, as do the ongoing problems in international markets. Despite the downturn in the economy the group’s retail debtors’ book and balance sheet remain extremely strong.”
Commenting on the past year he said consumers and especially the group’s customers who are mainly among the middle income market were hard hit by increasing job losses and short time.
As anticipated, defaults by customers grew, albeit marginally, in the wake of an increasing number of its customers having to resort to debt counselors for relief. Net bad debts as a percentage of its debtors book increased to 9,9%, but remains lower than its retail peers, but this is already showing a downward trend.
Diluted headline earnings per share were down 6,3% to 518,2c a share for the full year ended 31 March 2010. A final dividend of 170c a share (or 288c for the year) was declared.
During the year under review, turnover growth in the first half was 7,9% but consumer spending continued to deteriorate in the second half, notching up growth of 5%, resulting in growth of 6,4% for the year as a whole. Sales of clothing rose by 8,3%, homewares and furniture rose 15,7% and cosmetics grew by 12,8%. Jewellery sales which tend to slow fastest in tougher times, being a luxury item, performed acceptably when compared to the market both locally and overseas. Cellphone sales improved substantially in the second half as the supply issues experienced at the interim stage improved.
Mr Murray said the Sports division, trading as Totalsports, sportscene and DueSouth traded well in the current climate with turnover growth of 15,4% and maintains its market leader position.
He said this is an exciting period for the Sports division with the World Cup 2010 only a few weeks away. It has spared no effort to prepare itself for this historic event. The three largest brands in sportswear have officially recognized Totalsports as a preferred partner for the World Cup.
The Foschini division, comprising Foschini, donna-claire, fashionexpress and Luella, had a mixed year with much better growth in the first half than in the second half, growing its turnover by 6,5%. Its turnover grew by 6,5%. Markham, its menswear division notched up clothing turnover up by 4,9%. The Jewellery division, comprising 365 American Swiss, Sterns and Matrix stores, had acceptable performance in the current difficult climate. It remains the dominant player in the mass middle-market jewellery sector.
RCS Group which is 55% owned by the Foschini Group and the remainder by The Standard Bank of South Africa Limited provides a range of broader financial services under its own brand. Although it experienced a challenging year last year, it performed far better this year with net profit before tax increasing by 11,5% to R225,9 million. The quality of new business written during the past year continued to improve with net bad debt as a percentage of its debtors book reducing to 12,3% from 14,1% last year. During March 2010, the RCS Group was successful in raising R303 million of new funding with its Domestic Medium Term Note Programme. The funds are a mixture of long (4 year) and short term (12 months) paper. Since the year-end an additional R250 million has been placed on a 7-year term. This new funding will allow the RCS Group to return to its growth potential in the future, and will in time, lessen its reliance on funding from the Foschini Group.
In keeping with the group’s longer term investment strategy, it continued to grow its retail footprint in the past year, opening a further 100 stores, whilst 12 were closed. At the year end the group was trading out of 1 627 stores across all its various formats, with a further 100 stores planned for this year.
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