Truworths has reported the worst decline in interim sales volumes of all the listed retailers on the JSE.

Investors sent the share price tumbling more than 4% in intraday trade on Thursday, before it made a strong recovery to close 1% higher at R84.23.

In the 26 weeks ended December 25, Truworths said sales excluding those of UK-based Office Group were unchanged from the year-earlier period at R7.4bn.

Comparable store retail sales excluding the UK operations decreased by 3% while product inflation averaged 16%.

Headline earnings per share fell by 3% to 392.6c. The group maintained its interim dividend at 270c per share.

Ashburton fund manager Wayne McCurrie said the local retail environment was extremely tough.

"Truworths did say that the base they are comparing to in December last year was quite high, but to show no growth in retail sales this time around shows they had a tough time of it," said McCurrie.

The usual culprits were hurting companies in the retail sector, McCurrie said.

"The South African consumer is under a bit of pressure and the credit act has had an effect. But the economy is improving at last."

This could be good news for the group’s local operations. Interest rates are likely to come down and the economy is probably going to grow three times faster than last year.

However, this won’t be enough to show strong earnings growth," said McCurrie.

Office recorded retail sales of £159m, or R2.9bn, for the period compared with £160m in the year-earlier period.

During the period a net seven stores were opened across all brands, resulting in an increase in trading space of 2% (Truworths 2% and Office 1%). At the end of the period the group had 939 stores including 40 concession outlets.

Truworths’ gross margin decreased to 52.6% from 54.2%.

The new account acceptance rate remained unchanged from the comparable period at 29%, while the group’s active account base declined 6% to 2.6-million.

Anchor Capital investment analyst Liam Hechter said the retail headwinds of 2016 could become tailwinds in 2017.

"A big negative surprise in terms of tax increases on middle-and upper-income consumers is one big unknown in the short term — we will have clarity on this next week."

Tax hikes, a potential recovery from the country’s largest retailer, Edcon, and continued pressure from foreign stores such as Cotton On would remain "key developments to keep an eye on in the short to medium term and remain key risks to the fortunes of discretionary retail", Hechter said.

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