Acquisitions bolster revenue at Steinhoff

• Sales growth beat inflation even without new businesses, says analyst

Having bedded down a number of deals in 2016, Steinhoff is already reaping the financial benefits from its acquisitions, which contributed €1.3bn to the company’s coffers.

The integrated retailer said on Tuesday that total revenue in the first quarter had increased 45% to €5.3bn. Without the contribution of the newly acquired Mattress Firm and Poundland businesses, Steinhoff’s total revenue in the three months to December 31 2016 rose 11%.

Mergence equity analyst Peter Takaendesa said the group’s core operations in household goods and general merchandise retail continued to grow ahead of expectations.

Revenue for the household goods and general merchandise segments rose 41% to €3.2bn and 66%, to €1.8bn.

“Despite weaker economies in most regions, Steinhoff is continuing to grow sales ahead of inflation, even if you exclude new business acquisitions. This implies they are continuing to gain market share organically and boosting further with new business acquisitions. A recovery in the global economy — if it materialises — could, therefore, materially lift Steinhoff’s sales and profitability growth further,” Takaendesa said.

He was “only somewhat concerned that the recently acquired Mattress Firm could take a bit longer to restructure and extract expected value, given recent developments with Tempur Sealy as well as a softer start to the year”.

Steinhoff acquired Mattress Firm, the largest speciality bedding retailer in the US, for $3.8bn. In the update, Steinhoff said Mattress Firm’s first quarter was traditionally its slowest. The group said revenue there had also been affected by the accelerated integration of Sleepy’s stores in order to fast-track the single brand rationalisation.

“We look forward to more details on profitability and the overall financial position of the company,” Takaendesa said.

Steinhoff said its automotive division had grown revenue 6% in constant currency. On a likefor-like basis, revenue increased 4% despite continued weakness in the new and pre-owned vehicle markets in SA. In general merchandise, Steinhoff said double-digit revenue growth in SA had been underscored by the resilience of the defensive Pepkor model and supported by modest footprint growth.

It said: “Australia and the rest of Africa performed well in challenging market conditions, with the former delivering flat revenue in constant currency, while the rest of African operations reported strong constant currency growth.”

CEO Markus Jooste said the group had performed well in the period under review.

“Our business positioning in the discount segment of the market has continued to be beneficial to the group,” Jooste said. “Revenue growth achieved in the European general merchandise segment exceeded our expectations and management must be commended with strong double-digit like-for-like sales growth. The Poundland business’s performance was ahead of the value-creation plan and positive like-for-like sales were achieved for the quarter.”

Steinhoff was confident that the momentum gathered in the first three months of the group’s financial year would continue.

The company’s share price on the JSE initially rallied more than 2% following the release of the update, but backtracked in line with the all share index.

OUR BUSINESS POSITIONING IN THE DISCOUNT SEGMENT OF THE MARKET HAS CONTINUED TO BE BENEFICIAL