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Italtile: Economy down but not home renovations

Especially in the lower LSM segment.
Italtile shifts focus to lower LSM market.

Italtile is looking to further its position within the lower LSM segment, as consumers are proving to be resilient despite their spending power being under pressure.

Although the market continues to see consumers scale back on purchasing new homes in uncertain economic times, there are signs of green shoots in the home improvement market.

This is further supported by Italtile’s performance as it continues to shake off economic woes by reporting strong earnings for the 12 months to June 30, 2015.  Italtile reported an increase in trading profit of 21% to R905 million on the back of a 17% increase in turnover to R5.2 billion. Furthermore, it saw headline earnings per share rise by 22% to 71.6 cents.

CEO Nick Booth says on the growth of the lower LSM segment: “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.”

While mid- to high-LSM consumers, Booth says, are more wary of the economic headwinds and subsequently scale back on spending. Italtile’s brand offering targets homeowners across the LSM categories 4 to 10.

Italtile, the operator of CTM and Italtile Retail, is no doubt responding to the growth of the lower LSM segment through its entry-level home finishing brand TopT. During the period under review, Italtile rolled-out eleven stores across the country and a further three opened post year-end.

 “We have seen better growth in TopT than we have seen in Italtile Retail. People are going to spend and it is our job to make sure that they come to us rather than anyone else,” says Booth.

It is Italtile’s improved sales and operations and profitability, which boosted the counter to see its market share increase to 37%.

Independent retail analyst Syd Vianello says building product companies are currently seeing strong earnings. “That is the part which is puzzling. There is a disconnect between the economy and what is happening on the ground. People continue to undertake home renovations despite tough conditions,” says Vianello. 

Going forward Italtile is eyeing building further scale within the TopT brand through more store roll outs. “Much of the focus is very much on TopT. We do see opportunities in terms of the lower LSM and the resilience of this market,” Booth explains. CTM and Italtile Retail will see more store openings in the next year.

Booth says while other competitors are reducing their stock level, Italtile is not following suit. “When the rand weakened, competitors cleared their stock and when the rand improved they went shopping for more stock in China or Europe. Most of the competitors who follow that strategy will have to restock to some level and obviously the rand is not going to work to their favour.

“We have taken a view to be more realistic in our approach in making sure we maintain our supply chain with stock going forward,” he says.

Within its supply chain networks are companies which include International Tap Distributors (ITD), Cedar Point and Distribution Centre. ITD is an importer of brassware and accessories; Cedar Point, is an importer of tiling tools, laminated boards, cabinets and accessories and Distribution Centre is in the logistics and warehousing space.

With its selling price inflation of 7%, above the official inflation rate of 5%, Italtile was able to limit some of the price increases as its relationships with suppliers helped the group ensure the competitiveness of its offering.

In a recent note financial services group Imara S.P. Reid says Italtile is well poised to take advantage of a recovery in the overall market. “We nevertheless believe that the management has continued to prove its worth and its strategy is well suited to the current environment,” it says. 

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