Despite Truworths International’s group retail sales increasing by just 2% to R9.9 billion for the six months ending December 2021, the upper market fashion retailer has posted record H1 profits thanks to a 600 basis points increase in its operating profit margin.
“The group’s profitability in the current period has recovered to pre-Covid levels,” CEO Michael Mark said in a statement.
Cash generated from operations totalled R2.8 billion, with R1.3 billion returned to shareholders through dividend payments (R475 million) and share buybacks (R780 million). Truworths increased headline earnings per share by 32.2% to 449 cents and declared an interim dividend of 300 cents per share, up 29.3%.
“Operating profit increased by 32.5% to R2.5 billion resulting in the operating profit margin expanding by 600 basis points to 26.5%,” it noted.
“As a consequence, we report the highest half-year trading and operating profit performance in the group’s history,” trumpeted Mark.
He said the group posted a strong turnaround despite the macroeconomic challenges during the six-month period which created a particularly difficult trading environment.
“We continued to encounter the impact of the Covid-19 pandemic on our main markets and the resultant supply chain disruptions, the devastating civil unrest in KwaZulu-Natal in July 2021 and the fallout from the United Kingdom’s exit from the European Union.”
The group noted that the supply chain disruptions resulted in unusually lower than planned inventory levels which led to lost sales during November, which included Black Friday, and the festive season trading period in December.
“On the positive side these shortages, together with the obvious appeal the stock in stores had to customers, led to a much-reduced season-end stock carryover, and therefore lower markdowns and higher gross margin,” it said.
“The group’s gross margin strengthened by 210 basis points to 53.6%. Truworths Africa’s gross margin increased to 56.4% (2020: 54.7%) mainly due to lower promotional activity, which was partially offset by the impact of the stock losses arising from the civil unrest.”
Retail sales in Truworths Africa, which comprises mainly the Truworths and Identity businesses in South Africa, grew by 1.4% to R7.4 billion.
“Account sales comprised 68% of Truworths’ retail sales. Online sales continued to show good growth of 32% and contributed 2.2% of total retail sales in Truworths Africa,” the group said.
Truworths’s London-based Office footwear retail business saw retail sales increased by 8.1% to £123 million, with online sales contributing notably some 47% of the unit’s retail sales.
Openings and closures
The group said that during the past year it closed nine stores across all brands. Truworths Africa opened 35 stores and closed 25, while Office closed 19.
Its retail footprint now comprises 761 stores in South Africa and 32 in the rest of Africa, with 94 stores across Office’s operations in the UK, Germany and the Republic of Ireland (including 11 concession outlets).
“Trading space in Truworths is expected to remain unchanged for the 2022 financial year while Office trading space is planned to decline by approximately 11% as the chain continues to exit unprofitable stores as leases expire or lease breaks are agreed with landlords.”
On the outlook for the second half of the financial year, Mark said the lifting of Covid-19 restrictions after the peak of the fourth wave of the pandemic has resulted in the economy starting to normalise.
“The increasing levels of social and business engagement are favourable for consumer sentiment and ultimately retail spending,” he said.
“While the economic outlook remains weak, we expect the group’s growth to be driven by increasing market share in categories where our brands are under-represented, the ongoing improvement in the health of the debtors book and through new and expanded retail store concepts and brands.”