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Italtile: DIY home improvement projects still on the up

The company’s performance continues to buck retail drivers like unemployment, consumer indebtedness.
Italtile is looking to build scale and position itself within the lower LSM segment.

Although household budgets are being stretched due to sustained rising costs, consumers are still embarking on home improvement projects.

And one counter that continues to benefit from consumers’ growing appetite for do-it-yourself (DIY) projects is Italtile.

In a trading statement for the six months to December 31, 2015, Italtile expects headline earnings per share (Heps) to be between 42.8 cents and 44.3 cents, an increase of between 20% and 24% from 2014.

Its system-wide turnover during the period will be between 12% and 15% than the previous period’s R2.72 billion. Trading profit will be between 15% and 19% higher than the previous year’s R459 million.

Over the last five years, consumers have scaled back on purchasing new homes in uncertain economic times, but there are signs of green shoots in the home improvement market. The FNB/BER Building Confidence Index supports this, as the index regained some ground, rising by 4 points to 48 in the fourth quarter of 2015 – still below the 50 points level, but indicative of the sector’s regained momentum. 

Italtile is entrenching itself as a leader in the tile materials industry with its broad brands such as CTM, Italtile Retail and its entry-level home finishing business TopT. 

Its radical business optimisation programme to improve IT systems, the supply chain process and in-store efficiencies to enhance the customer shopping experience has benefited Italtile. The retailer implemented phase one of the programme and is yet to roll it out in full scale.

While most of its competitors import products, likely to impact them with the devaluation of the rand against major currencies, Italtile largely sources its tile merchandise locally from Ceramic Industries and Ezeetile. It has strategic investments in both companies, which Italtile says continues to deliver pleasing returns and supports its growth agenda. Total contribution to Italtile’s profits from Ceramic Industries and Ezeetile rose between 62 and 65%.

In recent years the hardware construction retail sector – with margins in excess of R100 billion – has seen the consolidation of independent tile and hardware retailers. This has spurred counters like Cashbuild, Massmart and Italtile to grow their market share through acquisitions. 

Italtile is looking to build scale and position itself within the lower LSM segment. CEO Nick Booth comments: “They want to renovate and make their houses beautiful inside. They want to keep up with the neighbours and that is really the driver. We have seen good growth in this market.”

Italtile’s brand offerings target homeowners across the LSM categories 4 to 10. Going forward, Italtile is eyeing building further scale within the TopT brand through more store roll-outs.

Cashbuild, Spar’s Build it and Massmart’s Builders Warehouse have also been aggressive by rolling out stores in a bid to attract contractors and consumers. But Italtile’s advantage comes from its positioning as a specialist tile, sanitary ware, taps and bathroom furniture business, while others sell general hardware merchandise.

SA’s largest hardware retailer Cashbuild, in a second quarter operational update, reported a 15% rise in revenue buoyed by the retailer’s store roll outs. Cashbuild, which supplies building materials to cash paying customers, saw sales increase by 4% for the period. Its product inflation was 2% at the end of December 2015. Massmart’s Massbuild division, with brands like Builders Warehouse, saw sales increase by 11% for 52 weeks to December 27, 2015, with product inflation of 3.8%. 

Analysts say the resilience of hardware and construction retailers does not match the performance of the economy and bucks retail drivers like unemployment, consumer indebtedness and rising interest rates.

Italtile shares were up 3.57% to R11.60 at 12:40pm.

Italtile and Cashbuild

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