Sun still shines at malls

That its fortunes are changing was evident in the company's results for the year to March.

While turnover grew 5.5% to R8bn, growth picked up in the second half to 8%, compared with 3% in the first. Operating profit grew 6.3% to R2bn, but in the first half profit fell 3%.

Similarly, headline earnings per share gained 2.3% to 559.5c, but only thanks to the 6% growth in the second half.

Besides the flagship Foschini ladieswear chain, the group includes Markhams, Due South, Total Sports, Sportscene, and @home. According to CEO Doug Murray, the second half uptick in sales has continued into this financial year. But Murray remains cautious. “Despite the recent interest rate cuts and the downward trend in inflation, we do not expect much improvement in trading until the second half of this year. There are still tough times ahead for consumers.”

Value trader Mr Price and Edcon, Africa's largest retailer, also thumbed their noses at the recession by releasing better than expected results. Mr Price grew retail sales by 19% to R8,6bn, with comparable sales up 11%. Operating profit increased by 15.5%, though the operating margin for retail sales decreased from 9.9% to 9.6%.

At Edcon, earnings before interest and tax grew by 11% to R3,4bn. Retail sales rose 9.4% with same-store sales growth of 3.2%.

“You have to ask how it is that apparel retailers are doing so well when Vat collections are down 25%,” says Nedcor Securities analyst Syd Vianello. “This is a clear signal that the economy is not in good shape.”

Retailers across the board have also done a good job of curtailing costs and all three have delivered on their promises to the market.

“Foschini promised us a turnaround in the second half,” says Citigroup analyst Dean Ginsberg. “The core brand had some problems, but management has raised the game when it comes to merchandise and branding.” Edcon, he says, had to convert inventory into sales to pay off debt. “It could not afford to lose market share or revenues. The market was sceptical, but I'd say it has outperformed expectations.”

Mr Price opened 58 new stores in the year while Edcon invested R571m into 92 new stores, refurbishing others and installing a new point-of-sale system. However, CEO Steve Ross says capital expenditure in the year ahead is not expected to remain at this level.

Foschini is growing its operations aggressively. It opened 154 new stores during the year and will open another 120 in the coming year.

The new stores contributed to the positive results. “Growth in retail turnover was driven by inflation and new store growth,” says Ginsberg. “But this is not a big issue as long as earnings are growing, the companies are covering costs and paying their debts.”

Edcon, carrying debt of R20bn, is managing to service the debt through this period. “It has pegged its interest at 4.5% and covered the currency forward at a fixed rate,” says Vianello.

The big risk, he says, is a collapse in retail turnover caused by job losses. “As long as the new sales from people who are still employed is more than the volume of sales lost by people who have lost their jobs, retailers will be all right.”

Foschini expects big things from its sports stores from the Fifa World Cup. Murray estimates there will be an additional R100m in sales over the next two years from soccer-related products. Total Sports and Sportscene are the partners of choice for Adidas and Puma.

Source: Financial Mail

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