Clothing sector to unzip retail sales growth
While figures suggest signs of recovery, the spoils have not trickled down to all clothing retailers
Analysts are upbeat about the clothing-retail sector’s outlook for 2018 even though some struggled to lift volumes significantly on Black Friday and during the festive season.
The festive season and Black Friday are the busiest trading periods for clothing retailers, but some missed the mark and failed to attract consumers to spend more at their stores.
Figures released on Wednesday showed South African retail sales jumped 8.2% year on year in November and 4% monthly, the biggest margin since 2012.
Although the acceleration was driven by higher sales in the textile sector, which climbed 12.4% year on year from 5.6% in the previous month, and a rise in sales of household furniture and appliances 14.1% year on year, the boost did reflect in the volume growth of value retailers such as Mr Price.
Mr Price reported an 8.3% increase in third-quarter sales on Wednesday. Its total retail sales were R6.6bn for the three months to end-December, buoyed by the retailer’s core clothing division, which climbed 11.3%.
Casparus Treurnicht, portfolio manager at Gryphon Asset Management, commended the company for its turnaround after an abysmal performance in 2016.
"[It] looks like they’ve isolated issues experienced in 2016 and pressed that reset button," said Treurnicht.
While figures suggest signs of recovery in the economy, the spoils have not trickled down to all clothing retailers.
Truworths and Woolworths had the toughest time during the period.
Woolworths has warned shareholders to prepare for a blow to earnings.
Due to lower sales and probably a drop in operating margins, the retailer said headline earnings would drop 12.5%-17.5%.
Its food division was surprisingly the only sector whose numbers had a favourable outcome in SA, with 9.4% growth.
Group sales increased 2.5%. In SA, fashion, beauty and home declined 0.2%.
In Australia, David Jones and Country Road increased sales 0.6% and 5.2%, respectively.
Net retail space declined 2.2% for David Jones in that country as it continued to restructure stores.
An under-pressure Truworths said it expected diluted headline earnings per share for the 26 weeks to December 2017 to fall as much as 5% to between 372c and 380c. It battled to increase sales volumes while fending off competitors for market share. Overall sales rose slightly to R10.3bn from R10.2bn.
Matthew Zunckel, equity analyst at Vele Asset Managers, attributed the poor recovery numbers to high price points that continue to drive customers to competitors.
"Truworths is lagging TFG on a recovery in volumes," Zunckel said.
TFG’s consolidated turnover growth for November 26 to December 30 was up 31%.
For the nine months to December 31, total sales — including its African and international divisions — were up 17.1%.
TFG said Black Friday sales were "strong" while the December trading was "pleasing and above management’s expectations".
Peter Takaendesa, portfolio manager at Mergence Investment Managers, said if TFG could improve its cash generation further, there was room for shares to rerate further as the quality of earnings also improved.
"TFG’s sales momentum over the past 12 months suggests they are executing better than peers and we expect them to continue to grow ahead of peers over the midterm," said Takaendesa.
Treurnicht said while TFG’s figures were a bit blurred by its sizeable acquisitions in the recent past, there were improvements in the making when taking inflation into account while analysing the like-for-like numbers of Truworths and TFG.
"Together with the recent political changes, it is very understandable why retail has had such a brilliant run," Treurnicht said.
Truworths said sales to account holders continued to constitute half of total sales, with cash sales growing by 1%.
Zunckel said if there was a strong improvement in credit extension in 2018, on improving consumer confidence, Truworths would be among stocks that would be most geared to a recovery.