Italtile expects sales to pick up in June as lockdown eases
The group says early indications are that sales will pick up in June and should exceed June 2019’s strong performance
Italtile, the owner of the CTM and TopT brands, says it is optimistic that sales will pick up in June as SA’s lockdown eases, though it will see a drop in profits in its year to end-June as Covid-1`9 weighs on the construction sector.
The company said sales should exceed the strong performance the group enjoyed in June 2019.
Headline earnings per share (HEPS) for the year to end-June are expected to fall by between 18% and 28% from the year-earlier period’s 101.8c, the group said in a trading update.
This includes a one-off R39m charge related to a black empowerment transaction. In September, Italtile said Yard Investment Holdings, an equity investment firm, had bought a 2% stake for R312.2m. The subscription shares had been allotted at about a 10% discount.
Italtile said on Wednesday retail sales were substantially lower, partially due to a continued deterioration of the commercial projects market, particularly in the premium end.
There had also been a general decline in the size of the top-end residential market, as private investor capital exited SA, the group said.
“The inability of contractors to operate during the lockdown further restricted sales in the high-end home renovations segment,” the group said.
The group’s online sales and delivery platform recorded a “pleasing performance” over the period before the lockdown, and with restrictions placed on consumers shopping in-store during the lockdown, this channel benefited from growing traffic and increased quotes and sales, the group said.
“This trend is likely to become entrenched, aligned with consumer behaviour which adapted and changed due to restrictions imposed by lockdown regulations and will likely become a permanent feature,” Italtile said.
Total retail store sales for the 48 weeks to end-May 2020 decreased by 5%, while like-for-like retail store turnover declined by 10% compared with the year-earlier period, the group said.
Manufacturing sales for the 48 weeks were 10% lower when compared with the year-earlier period.
Italtile said it would issue another trading update should June not turn out as expected.
Italtile’s hallmark has been its stringent cost control. It entered Covid-19 with inventory reduction under way, as well as operational cost containment and repositioning some of its stores, especially CTM, to suit a weaker consumer operational environment, said Small Talk Daily's Anthony Clark.
While new home construction would be slow to recover in SA's economically distressed environment, “homeowners that have been ‘cocooned’ in their homes for over 82 days will surely be looking to upgrade and refurbish their homes rather than move house or build”.
“Luckily Italtile has a broad and deep retail network via the middle market CTM and lower-end TopT to help cushion its business,” said Clark.
Italtile's share price was down 4.12% to close at R10.25
Update: June 17 2020
This story has been updated with more background information, analyst's comment and the closing share price.