SITTING ON A BED OF ROSES
Steinhoff‘s operating profit up 12.5% to €327m for the quarter to end September
SOUTH African furniture and clothing retailer Steinhoff International Holdings yesterday traded above 8 percent on the JSE after the group reported a 12.5 percent increase in operating profit to €327 million (R4.80 billion).
Steinhoff said its earnings for the quarter to end September were boosted by general merchandise sales in South Africa and eastern Europe. The profit represented an operating profit margin of 9.7 percent.
It said margins increased 21.1 percent to €352m after restructuring costs, representing an 80 basis points increase in operating margin for the quarter under review.
Chief executive Markus Jooste said: “As this calendar year is drawing to a close and I reflect on the past year, I recognise that this has been one of the most transformative years in the 53-year history of Steinhoff.” Revenue for the quarter increased by 12.1 percent to €3.4bn with retail operations generating nearly 93 percent of the total.
The operations improved sales by 15.6 percent and 61 percent of group revenue was earned in Europe and the UK. Africa contributed 32 percent to its revenue, with most of it earned in South Africa.
The household good retail segment increased 13.6 percent to €2.2bn for the quarter while operating profit rose by 10.1 percent to €241m.
The general merchandise retail segment improved revenue by 18 percent to €895m, up from €758m reported in the same quarter in 2015 after adjustments for currency fluctuations relating mostly to the South African rand.
The eastern European division continued its growth trajectory, with like-for-like sales growth exceeding 20 percent in all countries after strong performance from Hungary and Romania.
Steinhoff plans to double its clothing stores in Eastern Europe to 2 000 in the next five years, extending the retailer’s reach in one of its fastest growing regions. Its revenue in the automotive sector was stable.
The group has been busy on the acquisitions front during 2016. Steinhoff acquired US based Mattress Firm for $3.8bn (R51.96bn) and UK’s Poundland for $800m after it failed to secure France’s Darty and Britain’s Home Retail. In South Africa, Steinhoff added Tekkie Town to its list of acquisitions.
Neil Brown, co-fund manager and equity analyst at Electus Fund Managers, said revenue growth came out strong and there was some improvement in operating margins.
Brown said it remained important for Steinhoff to continue improving its margins, as through acquisitions it would become increasingly vertically integrated across manufacture, supply chain and retailing.
“While Steinhoff has raised all the necessary equity and debt funding at attractive rates, Steinhoff needs to ensure that it improves its return on capital metrics, which have all been declining over the past 10 years,” Brown said. “In summary: a solid result, but not exceptional. The share price has probably risen sharply today because since August 2016 it has fallen from above R90 or €6, to below R65 or €4.50 today, at which Steinhoff is very attractive priced.”
Steinhoff changed its yearend to September from June to align with its peers. Its shares were up 9.5 percent on the JSE yesterday to close at R69.75.