Truworths to contain costs

HARARE - Clothing retailer, Truworths, says the group’s cost-cutting measures were now bearing fruits, impacting positively on its performance.

Truworths’ managing director Themba Ndebele said the first quarter from July 11 to October 6 after the full year ended July 8 experienced a modest increase in turnover as a result of a significant reduction in distribution, advertising, marketing and trade receivable costs.

“With cost savings that are being achieved currently by the business, we expect an improved performance up to December,” said Ndebele adding uncertainties still remain on the level of consumer disposable incomes.

He said the listed retailer will continue strengthening its brand to keep up with competitors.

“Our main strength is to maintain our brand and we won’t depart from our brand ethics. I can go now into doing the same thing that the flea markets are doing, flood those products into our stores, once Zimbabwe changes will you still go into a Truworths store?” Ndebele asked rhetorically adding that providing and maintaining quality brands was at the heart of their business.

He said prudent risk management will remain in focus with the credit environment expected to deteriorate in the year ahead, due to the erosion of consumer disposable incomes.

Ndebele said the company had started acting on employment and occupancy costs which shot up by 17,6 percent and 30 percent respectively in the period under review.

“Employment costs have been increased by the Nec by between 8,6 percent and 11,53 percent which was beyond the expectations of five percent. Occupancy costs remain on a major concern but we will endeavour to negotiate rental increases to be in line with business activity and overall consumer price inflation which is expected not to be below five percent per annum,” said Ndebele.

He emphasised the need to contain expenses growth with Truworths overall trading expenses increasing by 7,5 percent to $10 million.

“Depreciation and amortisation increased by 6,5 percent owing to capital expenditure of $899 323 in the period, as well as the capital expenditure of $895 784 in the prior year that was depreciated for the full financial period,’’ said Ndebele.

“Productively containing expense growth will ensure the company commits to growing sales quality which declined by 2,3 percent to $22 million compared to prior period.”

Truworths retail trading profit decreased by 49,9 percent to $1,1 million with gross margins lowered owing to increased promotion activities compared to prior period.

“Promotional discounts were 6,7 percent of turnover compared to 4,8 percent in the prior period,” said Ndebele.

Finance income was 10,7 percent lower than the prior period due to a better performing debtors book and finance costs increased by 10,4 percent due to higher levels of borrowings.

“Operating profit declined by 62,5 percent to $647 678 resulting in an operating margin of four percent compared to 10,4 percent prior period,” said Ndebele.

The group’s low end income retail Number 1 Stores came out tops in merchandise sales performance, recording an 18 percent increase compared to prior period.

Truworths and Topics posted a negative growth of 2,9 percent and 3,1 percent respectively.

The group’s gross trade receivables increased by 23,3 percent with the number of accounts increasing by 10,5 percent to 70 724.

Ndebele said that growth in trade receivables book is attributable to the increase in credit terms by one month effective from December last year and a 14,3 percent in credit sales in the last quarter of the reporting period.

Out of more than 70 000 account holders, 87,1 percent were able to make purchases, an improvement from 76,9 percent at the prior period end.

“Net bad debts as a percentage of credit sales were 1,8 percent compared to 2,2 percent in the prior period and doubtful debt allowance at the end of the period was 4,5 percent compared to 5,3 percent at the period end,” said Ndebele. - Kudzai Chawafambira

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