Cashbuild soars despite SA’s retail malaise

Cementing the resilience of hardware retailers.

Cashbuild reported a 15% rise in full-year profit, signalling that the building materials retailer continues to eke out growth in a tough retail market in South Africa.  

The retailer grew revenue by 13% to R8.6 billion for the year to June 2016 and posted headline earnings per share growth of 25% to R18.91.

Its profitability would be higher if Cashbuild didn’t buy R62 million worth of shares from its black economic empowerment trust in January and distributed the proceeds to empowerment shareholders.

Cashbuild’s earnings were enhanced by its focus on customer service, new stores opened and well-stocked stores. In the latter, Cashbuild’s stock levels increased by 17%, which was in line with increased sales.

Just like most retailers that are investing in price and limiting price increases on goods to drum up sales and draw more feet into stores, Cashbuild’s selling price inflation came in at 3% during the period.

During the year, Cashbuild opened 11 new stores, growing its total network of stores to 284 and also refurbished 23 stores. Included in its number of stores are ten Cashbuild DIY pilot stores, which are typically smaller in their retail format.

The retailer has in recent months maintained that it has the capacity to grow its store network to 300 Cashbuild stores, as it seeks to grow market share in a competitive building materials market.  The company also has stores beyond South Africa’s borders, in markets such as Botswana, Lesotho, Namibia, Swaziland and Malawi.

Cashbuild says its store expansion, relocation and refurbishment plans will continue in a controlled manner “applying the same rigorous process as in the past.”

Also glossing up its earnings is the inclusion of its recently-acquired small family hardware business P & L Hardware in June; Cashbuild shelled out R340 million for the deal. P&L Hardware contributed revenue of R62 million to Cashbuild.

The retailer’s customers are typically home-builders and improvers, contractors, farmers and traders, paying cash for merchandise. 

Although the market continues to see consumers scale back on purchasing new homes, there are signs of green shoots in the home improvement market. Supporting this is the latest First National Bank/Bureau for Economic Research building confidence index for the second quarter. Although building confidence declined by 5 points to 34 points, FNB’s property strategist John Loos says there is still some life in the residential building activity compared with the struggling non-residential sector – with approved commercial construction projects declining.

Hardware retailers have been more resilient to South Africa’s slowing economy and the slump in consumer spending than apparel and food retailers. But the slowdown in the economy is starting to hit some retailers such as Massmart’s Massbuild division, which includes Builders Warehouse, which reported a total interim sales growth of 5.8%, while comparable sales only grew at a pedestrian 0.8%. Read more here.

Cashbuild’s competitor Italtile – which operates brands such as TopT, CTM and Italtile Retail – is also bucking South Africa’s retail malaise, as it grew annual trading profit by 16% to R1 billion. Read more here.

Cashbuild declared a total dividend of R10.01, which is 41% higher than the dividend for the previous year. 

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