Sales down as tight trading hurts Italtile

The company, which owns Italtile, CTM and Top T outlets, said headline earnings for the six months to December had dropped 2% to 17.1c per share. Turnover was 2% down on the previous year at R1,39bn.

CEO Gian-Paolo Ravazzotti said sales had decreased because of the “tight” trading conditions which had affected the middle and upper end of its consumer base. The trading conditions meant that full-year earnings were unlikely to be at last year's level.

Italtile's trading profit decreased 6.7% to R194m, which resulted in an operating margin decrease of 0.7% to 14%. An interim dividend of 6c a share was declared.

Price inflation year on year was limited to 2.5% due to the tight trading conditions and a decline in foot traffic across the store network.

But the group's entry level CTM outlets in rural areas had shown “substantial growth” as entry-level consumers buoyed sales. Ravazzotti said while baskets were small, sales were in cash and frequent.

The group is developing a chain of entry-level outlets called Top T. Ravazzotti said the chain, with seven stores, had not contributed anything to the group's interim results yet.

Ravazzotti expressed concern that impending retrenchments, which were likely to affect blue collar workers mostly, would affect this end of the market, slowing growth. But he felt that a decline in interest rates, inflation and cheaper fuel would encourage suburban consumers to invest in renovating their properties.

Syd Vianello, an analyst with Nedcor Securities, said he did not know how long it would be before interest rate decreases filtered through to sales.

Italtile had decreased inventories 15% to R224m, taking working capital to historic levels. Cash reserves were up R25m. “We now have the flexibility to purchase products that will meet the current requirements of our customers,” said Ravazzotti.

A trend towards buying down and spending wisely had spurred sales of local tiles.

“We have experienced that our consumers have become more discerning in their purchasing decisions, gravitating towards products which offer value.

“We have seen a greater demand for our locally procured merchandise rather than for imports.”

He said there was also a larger range available for consumers and he would use the slowdown to introduce new products and ensure competitive prices. The Australian operation broke even as the country was “severely” affected by the global slowdown. Despite the slowdown, Italtile was contemplating re-entering the Zambian and Malawian markets. Its stores in Kenya and Uganda were profitable.

Source: Business Day

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