Economy tears fabric of sales
Apparel retailers cite consumer uncertainty and political turmoil as sector’s performance and market value suffer
Results from apparel retailers in the past month have made it abundantly clear that South African household consumption is slowing down. Sales figures from Mr Price Group, Edcon and TFG show that shoppers are reluctant to spend in an economy fraught with uncertainty.
Results from apparel retailers in the past month have made it abundantly clear that South African household consumption is slowing down. Sales figures from Mr Price Group, Edcon and TFG show that shoppers are reluctant to spend in an economy fraught with uncertainty.
Mr Price Group reported a drop in headline earnings for the first time in 16 years. In the year to April 1 2017, Mr Price reported a fall of 10.4% in diluted headline earnings per share to 887.9c.
Retail sales eased 0.5%, while comparable store sales fell 3.6% to R18.6bn.
Mr Price blamed the drop in sales on weak consumer sentiment and political turmoil.
TFG, in its results for the year to end March 2017, also cited political and economic uncertainty as factors that would affect its performance in the new financial year. Turnover growth for TFG Africa was 8%, with comparable sales growth of 2.8%.
According to Kagiso Asset Management associate portfolio manager Simon Anderssen, this meant that in the last quarter, TFG Africa’s like-for-like sales were 0.2%.
Departing Edcon CEO Bernie Brookes also spoke of a challenging economy putting pressure on SA’s largest nonfood retailer. For the 52 weeks to March, Edcon’s group sales decreased 6.7% to R25bn, while adjusted earnings before interest, tax, depreciation and amortisation fell 45% to R1.4bn.
Brookes said downward consumption trends could be seen in the way new stores cannibalised sales in older stores.
“As the leases come up, we are reviewing the stores to see if we should keep them open or not,” said Brookes.
“It’s the most sensible thing to do, especially if you consider the market as it is right now.”
While TFG and Mr Price Group are cautiously optimistic about the prospects for their companies, analysts and the market seem less enthusiastic.
Electus Fund Managers equity analyst Damon Buss said retailers’ revenues were likely to come under more pressure due to low consumer confidence and economic factors.
Finance group HSBC said it expected virtually no growth in apparel sector profits until 2019. According to Bloomberg, HSBC analysts Jeanine Womersley and Harshul Sharma said in a note that South African consumers were “unlikely to see a cyclical recovery in 2017, and even if this does materialise, it’s unlikely to be of the magnitude required to offset the structural headwinds we believe face the sector”.
In the past year, TFG’s share price has shed 5.38% and has declined 11.06% in the year to date. The company has a market valuation of about R31.32bn. Mr Price Group’s share price has decreased 21.04% over the past year but is up 3.31% so far in 2017. The group is valued at about R42.22bn.
Retail trade figures due on Tuesday are expected to shed more light on the sector.