Liquidity crunch bites Truworths

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Clothing retail chain Truworths Limited recorded a decline in merchandise sales for the 26 weeks ended January 8 2012 as a result of low disposable incomes in November and December last year.

Chief executive officer Ben Ndebele told an analyst briefing on Monday that on a weekly trading basis merchandise sales declined by 8% compared to the same period last year.

“Last year’s sales were largely influenced by the introduction of six months’ credit in August which led to a surge in sales not repeatable in the reporting period,” he said.

“Low disposable incomes and high unemployment continue to hamper sustainable recovery in consumer spending,” he said.

Ndebele said there was need for an increase in liquidity and incomes as the clothing retail business thrived on the ability of consumers to buy goods on credit.

The group’s business units Truworths, Topics and Number 1, recorded decline in sales ranging from 15%, 11% and 16% respectively in the period under review.

Ndebele, however, said all the chains were contributing positively to the group with Truworths being the leader.

He said Number 1 stores were now performing better with most civil servants having moved from Truworths to Number 1.

Ndebele said this was reflected by increases in sales around the civil servants’ pay dates.
Operating profit for the group declined by 57% due to lower sales to $944 236 from $2, 1 million the previous year.

During the period under review, overall trading expenses grew by 5%.

Turnover for the group was down by 9% to $12, 4 million from $13, 6 million last year.

Ndebele said the risk for giving out loans was very high with the absence of a credit bureau.

“We are not signing a lot of new account holders now. We have got to manage it up front.

“We now have a track record of customers, one for the Zimbabwe dollar and a track record of United States dollars,” he said.

Ndebele said the group was worried about the continuous increases in rentals.
“Basic rentals went up by 31% as bases were adjusted upwards and the jury is still out on this going forward.

“Landlords should be realistic; you cannot base your rentals by square metres,” he said.

In the period under review, accounts increased by 26% compared to last year.

About 87% of the customers were able to make purchases compared to 85% last year.

He said the company would continue to focus on improving sales, profitability and prudent credit and cash management as well as containing productive expense growth to sustainable levels.