Woolies on the up and up
In the past year, the Woolworths share price has outperformed that of its listed credit-based rivals, Truworths and the Foschini Group. The upmarket retailer has benefited from steady spending by its well-heeled target market.
Woolworths return on equity (ROE) for shareholders increased from 44.9% to 50.8% in the 26 weeks ended December, its highest in 12 years. ROE is one of billionaire Warren Buffett's favourite ratios to consider when choosing a share.
Woolworths, which operates as a grocer and clothing retailer, says group sales for the 26 weeks to December grew 11.4% thanks to a strong festive season and foreign exchange gains. Clothing and general merchandise sales grew 10.1% as it experienced problems in the apparel segment, which would be "fixed soon".
Stanlib retail analyst Theresa Heath says Woolworths has cut costs and improved margins, which has stood it in a good stead for future growth. But, in the past year, it would seem Cape Town-based Foschini is the clear winner in the race for market share, although both Mr Price and Truworths have made significant gains in the past few years, to Edcon's detriment.
Foschini, whose subsidiaries include men's clothing chain Markham, its flagship women's clothing chain Foschini, and jewellery retailer American Swiss, says turnover grew 17% to R11,6bn while same-store turnover grew 10.6% and product inflation averaged 6% for the year to March.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, says if one left out Mr Price, which operates in a different market space as a cash retailer catering to the lower end of the market, Foschini is the best performer in the sector.
Last month, Mr Price, the owner of Miladys, Sheet Street and Mr Price Home, said it would open about 70 new stores next year, expand good-performing stores and reduce the size of poor-performing stores. Good performances from its apparel divisions combined with a strong performance from its home-ware division grew sales 10.2%. Sales excluding new stores rose 8.2%.
Nedbank Capital analyst Syd Vianello says Mr Price, Truworths and Foschini have stolen share from Edcon in the past few years.
"Woolworths apparel performance has been poor, and Foschini could be the best performer but it is off a low base."
Mr Price is streets ahead of the competition, Vianello says.
Edcon has experienced some constraints due to liquidity problems, he says.
On Wednesday, Edcon, one of SA's biggest retailers, reported a 9% rise in revenue to R27,3bn for the year to March as consumer demand remained resilient and the positive impact of various strategic initiatives gained momentum.
Growth in clothing retailer Truworths' Identity brand helped boost sales 10,7% to R4,8bn in the 26 weeks ending December. Its flagship Truworths ladies wear brand grew turnover 8%, Truworths menswear 8%, Daniel Hechter 9% and LTD increased sales 14%, the company says.
Patrice Rassou, head of equities at Sanlam Investment Management, says the headline numbers of the likes of Mr Price and Foschini have been impressive, even beating expectation. Mr Rassou says although overall margins across the clothing industry are at record highs, most retailers have been cautious on outlooks for the coming months. "There is evidence that the consumer is starting to pull back and demand could dampen going forward," he says.
Errol Shear, chief investment officer at Absa Asset Management, says the results from clothing retailers have been superb, but that the rate of growth is unlikely to continue, as consumers come under pressure thanks to costs and limited job creation.
SA's clothing retailers are also hoping to cash in on Africa's burgeoning middle class. The often quoted one-billion African consumers ripe for the picking is seen as the next hot ticket.
Foschini is in the midst of an aggressive expansion that will see it adding 57 new stores over the next three years in countries like Nigeria and Mozambique. Woolworths hopes to push its African footprint to 10% of total turnover from 3%. Mr Price will open its first store in Ghana this month and Pepkor last year said it would open 50 outlets in a R100m first phase expansion plan into Nigeria.
Source: Business Day
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