‘Tough year ahead for re­tail sec­tor’

The Star Late Edition - - BUSINESS REPORT - Ka­belo Khu­malo

AF­TER ex­pe­ri­enc­ing an un­der­whelm­ing fes­tive pe­riod, the South African re­tail sec­tor’s out­look for 2017 re­mains a som­bre one as low con­sumer con­fi­dence is ex­pected to weigh in on sales vol­ume this year.

One of the coun­try’s re­tail gi­ants, Wool­worths, said yes­ter­day that it ex­pected its first-half prof­its to de­cline by be­tween 2.5 per­cent and 7.5 per­cent af­ter the group re­ported just 6.7 per­cent rise in sales for the first 26 weeks of the 2017 fi­nan­cial year.

Derek En­gel­brecht, a re­tail and con­sumer prod­ucts leader at EY, said he an­tic­i­pated a tough year for re­tail­ers as the macroe­co­nomic con­di­tions were not favour­ing con­sumer con­fi­dence.

“Where com­pa­nies were as­tute enough to grow top line rev­enues, (this) will no doubt be at the ex­pense of prof­itabil­ity in the short-term and that seems to be what the Wool­worths trad­ing state­ment also im­plies,” En­gel­brecht said.

Wool­worths said it ex­pected its head­line earn­ings per share to de­crease by be­tween 2.5 per­cent and 7.7 per­cent to be­tween 234.5 to 247.2 cents per share for the pe­riod. How­ever, its earn­ing per share was ex­pected to rise in the range of 30 per­cent to 40 per­cent to be­tween 329.8 to 355.2 cents per share.

The com­pany at­trib­uted this to the profit it ac­crued from the dis­posal by David Jones of its Mar­ket Street prop­erty in Sydney.

The group’s an­nu­alised im­pair­ments went up to 5.9 per­cent from 4.8 per­cent in the com­par­a­tive pe­riod.

En­gel­brecht said the low con­sumer con­fi­dence had the big­gest im­pact on the durable part of the re­tail sec­tor.

“Con­sumers have no choice but to buy food, but a re­tailer like Wool­worths – which is con­sid­ered to be an up­per-topremium brand re­tailer – would lose some con­sumers as they trade down.”

Its cloth­ing and foods de­part­ments both recorded an in­crease in sales in the pe­riod un­der re­view.

The com­pany’s cloth­ing and gen­eral mer­chan­dise arm sales went up by 3.5 per­cent while its food depart­ment sales shot up by 9.5 per­cent.

Its fi­nan­cial ser­vices debtor’s book re­flected year-onyear growth of 2.3 per­cent at the end of De­cem­ber.

Man­isha Mo­rar, an an­a­lyst at ETM An­a­lyt­ics, said while the re­tail sec­tor had shown re­silience in 2015 and 2016 that re­silience had be­gun to wane.

“The out­look for the sec­tor this year is not op­ti­mistic, the main rea­son be­ing the credit cy­cle un­wind­ing and we have seen low credit growth trans­late into low con­sumer con­fi­dence,” Mo­rar said.

The group said its sales depart­ment stores David Jones and Coun­try Road were ad­versely im­pacted by the tim­ing of Box­ing Day and the Dicks Smith elec­tron­ics con­ces­sion fall­ing through. David Jones sales growth went down by 2.7 per­cent while Coun­try Road was down 1.1 per­cent.

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