RETAILING: Tough Trading Not Yet Abating
Recent Western Cape Business News
Trading conditions for the first five months of its current financial year remained extremely tough, but the Foschini group was looking ahead positively and would continue to open new stores in certain of its formats to increase its trading space by around 10% in the current year.
Doug Murray, Foschini Group CEO told the Annual General Meeting in Parow today (9 September) that although trading remained extremely tough and volatile with turnover vacillating month on month making it hard to see a trend, the group’s retail debtors’ book and balance sheet remained strong and all its trading divisions were ready to maximize any upturn in the economy.
In line with the group’s strategy of investing for the longer term, the group was continuing to expand the retail footprint of certain of its under-represented trading formats for when the upward trend in the retail cycle returns.
Reflecting on current turnover, he said total sales had grown by 8,3% for the first five months of this financial year with homewares, cosmetics and clothing all notching double digit increases in turnover. The growths in the various merchandise categories recorded include clothing sales up 12%, cosmetics up by 17,7% and homewares up by 20,4%.
The jewellery division’s sales fell by 3%, but given it trades in the luxury, discretionary category its performance is regarded as satisfactory in the current economic climate.
Mr Murray said the most disappointing category was that of its cellphones where the group was experiencing supply issues and remained understocked. It is expected that the stock position should be regularized by November.
Mr Murray told shareholders that it was too early to be too bullish about the economy.
“Our expectation is that the economy will start improving but only from the last quarter of our financial year, as lower interest rates begin to assist consumers.”
“In addition our second half of the year is heavily dependent on Christmas trading and this will largely determine the performance of the group in the second half.”
Foschini’s last set of published accounts for the year ended March 2009 showed how important the second half is to its performance. The first half of the year produced turnover growth of 2,9% and a reduction in headline earnings of 2,7%.
The second half saw a significant improvement with turnover growth of 7,8% and an increase in headline earnings of 6,1%. For the year as a whole, retail turnover increased by 5,5% and headline earnings per share increased by 2,3%. Diluted headline earnings per share was up 2,8%. Its total dividend for the year was maintained at 288 cents per share.
Mr Murray said in the context of the economic climate which prevailed during the past financial year both locally and globally, the results were satisfactory. The group notched up an operating profit before finance charges and tax of more than R2 billion.
Its operating margin improved from 24,8% to 25,0% and its retail debtors’ book performed well. The group’s return on equity was 26,9%
Looking ahead, he said the two major challenges for the group in the past year – that of the turnaround of the Foschini stores division and growth in RCS had been addressed, which was positive for the future.
“Foschini stores, which represents 30% of our group retail turnover has been underperforming when compared to our other trading divisions and the marketplace for a number of years.
“The repositioning and turnaround strategy which was put in place, is proving to be successful, resulting in far better merchandise selection and store layout. This is evidenced by a significantly improved second half financial performance last year which has continued into the new year.”
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