Fast growth weighs on Verimark

"The previous two years have seen unbelievable growth," Van Straaten said.

"We have almost doubled the size of the business, (but) this was not sustainable. The growth created a few problems, including the duplication of many functions and systems as the company could not fit into its warehouse any longer."

Now the company will have to wait until October before it can move into a bigger warehouse,

Both headline earnings per share and basic earnings per share fell from 31.5c to 25.8c. Revenue for the year fell 2.3% to R451,2m while gross profit declined by 5.6% to R188,8m.

"The search for new premises and infrastructure problems have distracted us from our focus, which is to contain costs and grow sales," Van Straaten said.

Considering the operational gearing of the business, he said, a marginal decrease or increase in sales would have a far bigger effect on profitability.

The weakening of the rand in the second half of the year also negatively affected gross profit margins, the company said.

Selling expenses declined by 4.5%, primarily due to lower sales, in-store advertising and related selling costs. Other operating expenses rose by 0.1% in the effort to contain costs.

Investment of R7,6m was attributed to plant and equipment to support sales and operations, Van Straaten said.

Last year the company said it was in a consolidation phase. Van Straaten said this had taken much longer than expected.

This would be remedied when the company moved into its new warehouse, he said.

Looking forward, the group said the "anticipated improvement in sales and the realisation of better operational efficiencies and cost controls augur well for sustainable earnings growth".

Chris Gilmour, an analyst at Absa Investments, said the results were disappointing but fundamentally Verimark was a sound business. "It may indicate that the business has a far greater alignment with the economic cycle than previously thought. Consumers are under pressure and it has become more difficult for retailers as a whole."

Source: Business Day