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Italtile: SA’s tile and ceramics front-runner

Yet again, the retailer bucks the consumer downturn.

It seems like there is no end to the rise of Italtile, even when a consumer and economic slump is in full swing.

The retailer is marking its position as a leader in the tile and ceramics industry, as it continues to deliver double-digit growth.

For the six months to December 31 2015, Italtile reported a 22% rise in headline earnings per share to 43.4 cents on the back of a 13% rise in its system-wide turnover to R3.08 billion.

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.

And Italtile is getting a share of consumer spend. Italtile’s trading profit for the period grew by 16% to R531 million.

Asked about how Italtile consistently delivers solid results in a tough consumer market, CFO Brandon Wood says it’s all in the strong performance of its brands CTM, Top T and Italtile Retail.

Italtile’s brand offering targets homeowners across the LSM categories 4 to 10. “We continue to leverage opportunities by stepping up on our offering on price, availability of stock and store competency. We also make sure the customer experience is right,” Wood tells Moneyweb.

But there might be another secret to Italtile’s strong performance – its focus on lower LSM consumers who are proving to be resilient and have a growing appetite for do-it-yourself (DIY) home-improvement projects. “They [lower LSM consumers] might buy down but they are still spending. And we are making sure that we are capitalising on that spend.” Italtile is catering to this market largely through its Top T brand.

Also putting Italtile in a strong and defensive position is its radical business optimisation programme which seeks to improve IT systems, the supply chain process and in-store efficiencies to enhance the customer shopping experience. The retailer implemented phase one of the programme and is yet to roll it out in full scale which might take up to three years.

“We have implemented it [the business optimisation programme] at two of our supply chain businesses and are looking to implement it at our retail stores CTM, Top T and Italtile Retail stores,” says Wood.

Italtile has a sweet spot in the market, as it controls more than 40% of SA’s tile industry through its brands. Furthermore, the counter is insulated from the weakness of the rand against major currencies as roughly 65% of its products are locally sourced while its small competitors largely rely on imports to compete. “With the rand at current levels, it’s very difficult for them,” says Wood.

Italtile’s advantage also comes from its positioning as a specialist tile, sanitary ware, taps and bathroom furniture business, whereas counters like Cashbuild, Spar Group’s Build It and Massmart’s Builders Warehouse sell general hardware merchandise.

Italtile largely sources its tile merchandise locally from Ceramic Industries and Ezeetile, which it has strategic investments in both companies, contributing R44 million to Italtile’s profits. 

In December, Italtile commissioned Ceramic Industries’ new tile plant Gryphon, which is expected to provide an alternative offering in the local market to imported large format glazed porcelain tiles.

Italtile manages 133 stores, of which 16 are located in the rest of Africa; largely in Kenya and Tanzania. Wood says there are massive opportunities to roll out more stores further into the continent. Italtile declared a dividend of 14 cents per share which is up 17%.

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