Low consumer demand drags down Cashbuild
Loss at P&L Hardware the real let-down, says analyst
Low consumer spend and increasing competition in the DIY retail environment hampered growth across Cashbuild’s stores, the company said on Tuesday.
Cashbuild, southern Africa’s largest retailer of building materials, closed eight nonperforming stores — five Cashbuild stores and three P&L Hardware outlets — as well as six DIY pilot stores.
The company, which sells to cash-paying customers through 315 stores, closed poorly performing stores whose leases had lapsed, CEO Werner de Jager said.
“But we have done 26 refurbishments and relocated four Cashbuild stores. We will continue investing in our business. We need to, otherwise we will lose ground to our competitors,” he said.
In the year to June 30, Cashbuild opened 11 new stores — nine Cashbuild stores and two P&L Hardware outlets.
Cashbuild’s customers include home builders, contractors, farmers and traders.
Cashbuild’s revenue for the year increased by 6% to R10.8bn, while operating profit was up 3% to R559m. The company, which opened its first store in 1978 and listed on the JSE in 1986, increased its headline earnings by 2% to R434m.
The company declared a final dividend of 420c per share, an increase of 21% on the prior year’s final dividend and total dividend per share increased by 2% to 855c per share.
Gross profit increased by 6% to R2.7bn, with the gross profit margin percentage declining from 25.2% to 25.1%. “This was achieved in tough trading conditions with selling price inflation of 3%. In essence, very little has changed since our last year-end in terms of the trading conditions experienced,” De Jager said.
P&L Hardware, which Cashbuild bought in 2016 for R350m, reported an operating loss of R8.5m, compared with an operating profit of R21.4m. That business increased revenue from R1.1bn to R1.2bn.
“We saw some pressure in gross margins in the (P&L Hardware) business. The gross margin fell by about 3%, hence the loss of R30m,” De Jager said.
Analyst Anthony Clark of Small Talk Daily said the Cashbuild results were indicative of the tough environment.
The environment was not conducive to revenue and volume growth and was characterised by weak product pricing power, he said.
Clark said the core domestic Cashbuild business had a “fair” year in a challenging consumer environment. The real let-down to results was the sharp reversal of P&L Hardware into a loss.
P&L Hardware, which was established as a family-owned business in 1982, supplies hardware and building materials into mainly rural markets.
Clark said the almost R30m reversal in P&L Hardware’s operating profit was the main drag to Cashbuild’s full-year results.
“Compared to its sector competitors Cashbuild has performed fairly though its weighting towards cement is higher than most and thus holds its performance back in a tight, competitive cement landscape for pockets,” Clark said.
Cashbuild said the first six weeks of the 2020 financial year had seen a 1% rise in group revenues.
“Traditionally sales do tend to pick up around the run-up to the festive period but given the general malaise and tight pockets of consumers early revenue numbers are not encouraging,” Clark said.