HomeBusinessTruworths predicts more headwinds after write-downs

Truworths predicts more headwinds after write-downs

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CLOTHING chain, Truworths says a difficult business climate that has unsettled the economy may continue troubling the markets in 2021, driven by slipping demand and a blazing liquidity crisis.

BY SHAME MAKOSHORI

These drawbacks pushed Truworths into a slowdown during the year ended July 31, 2020 with inflation-adjusted revenues sliding to $165,3 million, from $177,8 million in 2019. Post tax profits slowed to $9,3 million in 2020, from $23,4 million previously, defying tax credits earned during the period.

Chief executive officer Temba Ndebele said gross margin remained flat while higher operating expenses and lower finance income pushed pre-tax profit margins 5,8% down.

Revenues were also knocked by credit restrictions by the group, which operates some of the best known credit-granting brands on the market-Truworths MAN and Topics.
Number 1 Stores is also part of the Truworths group.

Big manufacturers and retailers across the markets have reported similar trends, which analysts predict may not fizzle out unless spending power is restored.

But the Zimbabwean market has failed to ride out of a series of crises since the time bond notes came into circulation in 2016.

“The short-to-medium term environment is expected to remain constrained (because of) diminished consumer purchasing power due to income growth not matching the devaluation of the Zimbabwe dollar, persistent Zimbabwe dollar liquidity shortages, COVID-19, which has resulted in virtual working on some of our customer base leading to a shift in the merchandise assortments and international supply chain disruptions due to COVID-19,” Ndebele said in a note accompanying the financial statements.

“Product availability was constrained during the reporting period due to foreign currency unavailability and pricing constraints. This has since improved with the introduction of the foreign exchange auction by the central bank. Due to hyperinflationary conditions, the business has had to conservatively and judiciously grant of credit, as a result, the number of active accounts decreased. The tenure of credit period was reduced and monthly interest charges were reduced upwards. The doubtful debt provision as a percentage of gross debtors was 13,5% compared to 15,2% in the prior period,” he said.

Truworths held back a dividend payout to prepare the group for potential headwinds.

Extensive power blackout, foreign currency and fuel shortages also haunted Zimbabwe’s fragile industries before COVID-19 emerged.

The Zimbabwe Stock Exchange-listed firm blamed the blanket lockdown imposed by government from March to limit spread of COVID-19, which tore through the world from January, closing economies and wreaking havoc on businesses.

Ndebele warned that COVID-19, together with the rapid disruption of international supply chains, would be among the biggest hurdles to recovery.

He spoke as recovery remained tepid in Truworths’ key central Harare outlets since government lifted most COVID-19 restrictions about two months ago.

On Friday, analysts at Morgan&Co blamed an overflow of secondhand imports for the slowdown at Truworths.

“We note that the substitute market has already begun cannibalising Truworth’s market in Zimbabwe through cheap imports from the region that have become pervasive in the country,” Morgan&Co said in an advisory paper on Friday.

“Performance of the formal apparel market is likely to remain subdued because of low disposable incomes viz-a-viz the high income elasticity of clothes and fashion accessories,” said the paper.

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