4 of 2022`

Newsletter No 04 / 4 February 2022                        

Click this link to access your Sourcing Directory https://newsbriefs.co.za/index/

Click on any ad to go to the advertisers website..

Clothing retailers’ festive season lift may not mean a better 2022

By Nick Wilson

MRP is among the retail brands that may fare better this year as consumers opt for value.

Analysts warn this need not foreshadow a broader recovery in SA

Several JSE-listed clothing retailers enjoyed a relatively strong festive season, but while trade was better than expected, analysts warn this does not mean a broader retail recovery in SA is in the offing.

Not only are rising interest rates looming but the economy is struggling, with few of the jobs lost during the pandemic being recovered.

For its third quarter and the nine months ended December 2021, Foschini owner TFG reported that its TFG Africa division, which includes all its South African business, reported retail turnover growth of 17.3% in the third quarter compared with 13.9% in the same period the previous year. It said December “pleasingly exceeded expectation with growth of 23% compared to December 2020”.

Mr Price reported strong growth during its third quarter, from October 3 to January 1 2022, reporting that retail sales and other income increased 19.2% to R9.3bn. This included the recently acquired Power Fashion and Yuppiechef businesses, excluding which it grew 7.2% to R8.3bn.

But others had a more muted performance.

At Pepkor in the quarter ended December 31 revenue increased 1.3% to R22.8bn due to “the strong base in the comparable quarter in the previous financial year and 161 looted stores that had not yet reopened at the start of the quarter following the civil unrest in KwaZulu-Natal and Gauteng during July 2021”.

Pepkor said though trading was “weak” in October it normalised in November and “strengthened” in December”, and the “improved trajectory is very encouraging” in the face of a weak economy and “record high levels of unemployment”.

As a result it believed the “discount and value retail segment will continue to perform well” and “continue to focus on offering our customers the best possible price”.

However, Pepkor was “concerned” its customers were “under increasing pressure” due in part to the weak economy, long-term effects of the pandemic and the higher levels of inflation expected.

Truworths, for the 26 weeks ended December 26, said Truworths Africa, which excludes its UK business called Office and comprising mainly of the businesses in SA,  reported a muted increase of 1.4% to R7.4bn in retail sales compared with the prior period.

However, even in the “midst of ongoing challenging trading conditions” the group estimates its headline earnings a share for the current period will increase between 29% and 34% compared with the prior period.

For the 26 weeks ended December 26, Woolworths’ fashion, beauty and home division in SA grew turnover and concession sales by 4.2% and 4.7% respectively in comparable stores, with price movement of 5.4%. However, it said “trading momentum slowed in the last six weeks of the period, primarily due to womenswear performing below expectations”.

All Weather Capital fund manager Chris Reddy said that “in general, the trading updates haven’t been as bad as some would have expected given the tough macro environment, although there are some nuances in the period that need to be factored in, such as the delayed school start in 2021 and stricter lockdowns in Australia and the UK for example”.

Reddy said the relatively strong growth was also due to “people not being able to travel as much during the period and having spent a bit more time in the malls and on discretionary expenditure”.

Casparus Treurnicht, research analyst and portfolio manager at Gryphon Asset Management, said last year people were hesitant to travel locally, never mind abroad, but that travel bans late last year in some way redirected “spending from overseas travel to local consumption”.

Sasfin Wealth senior equity analyst Alec Abraham said the trading updates were “relatively solid” considering the macro-economic circumstances.

“They’ve all focused on working capital management and keeping their stocks low because they are not sure how much they can sell. And frankly, I don’t think they were understocked, I think the consumer is weak.”

Analysts expect affordably priced value retail to fare better this year than the top end.

Treurnicht said the “recent trading outcomes” highlighted “that the value segment is where most of the action will happen over 2022”. He said it was hard to see how the “upper segment will ever retake market share as our country continues to underperform”.

Over the medium term the outlook for retail was “not that positive”, with consumer spending in SA likely to “muddle along” .

Treurnicht’s top picks were Pepkor and Mr Price, while he believes Woolworths may still be an underperformer as it tries turning around its fashion, beauty and home division.

Protea Capital Management analyst Richard Cheesman said the value end of the market and retailers such as Pepkor and Mr Price were positioned well, as was the case in 2021.

Mr Price and TFG appeared to be “winning” while Woolworths’ fashion, beauty and home division and Truworths were lagging a bit, he said.

But for Abraham the standout is Truworths: though its revenue growth was weak, the advantage it had was that its profit figures appeared to be a lot stronger  “because they can release provisions they made for bad debt last year”.

“If you look at all the credit stats that have come out they are not nearly as bad as one would have expected. The banks and retailers such as Truworths are in a good position in that the very generous provisions they made last year in case of bad debts, they can release now in their earnings.”

Truworths said with “regards to our consumer base and in particular our account customers, they have weathered the storm and have proven to be resilient despite the economic impact of the pandemic and the resultant job losses. Our book is performing well and at favourable levels seen prior to the pandemic.”

Looking ahead, Abraham said the rising interest rate environment made “things worse” for an economy in which there was barely growth and many jobs had been lost.

He expected discretionary spending on clothing to suffer, with consumers looking to the value segment when they do spend.

Reddy says All Weather preferred retailers that offered better value than their peers and these included TFG and Truworths.

He said another trend he was “watching carefully” among retailers was the “percentage of full-price sales” to “help margins while not giving up too much market share”.

Matt Warriner, investor relations director at Mr Price Group, said the group “strategically chose not to partake in the high level of promotional activity” and instead trusted its  every-day low price model to “deliver value to customers and preserve margins.

Warriner said the group was “satisfied” with the festive period performance and was “well placed to continue building” on its market share gains.

Truworths also said customer demand for “aspirational high fashion continues to show good resilience on full price in demand merchandise”.

Woolworths Group CEO Roy Bagattini said the group’s “biggest opportunity — certainly over the near term — lies in improving the underlying financial health of our fashion business, which, to be candid, has been disappointing for too long”.

“Our sales performance over this past six-month period is reflective of some of our repositioning initiatives. We’ve reduced our footprint by 6% and we’ve reduced our product intake, so while we’re selling less, it’s of a higher quality, and that’s translating into a stronger contribution from full-priced sales than we’ve seen in years and double-digit growth in our trading densities.”  BL

Finalists announced for SA Fashion Week New Talent Search 2022

Six talented emerging designers have been selected as finalists for the South African Fashion Week 2022 New Talent Search.

Competing in the prestigious fashion award for rising stars are:

Thando Ntuli – Munkus
Nichole Smith – Ipikoko
Mikhile du Plessis – MeKay Designs
Calvin Lunga Cebekhulu – Czene.24
Sanelisiwe Gcabashe – Gjenelo Couture
Mimangaliso Ndiko – Sixx6

Now in its 24th year, the winner will be announced on 28 April during the SAFW Spring Summer 22 Collections where the selected designers will feature their signature entries together with the debut capsule collection of the 2021 winner, Artho Eksteen.

The overall winner will receive R20,000 prize money towards developing their debut collection as well as a free runway show at SAFWSS 23 to launch this collection.
According to the SAFW director, Lucilla Booyzen, all the participating finalists are winners because the platform’s visibility to the media and fashion buyers ensures the national and international exposure that allows any fledgling career to gain the necessary entrepreneurial traction.

SAFW’s New Talent Search has consistently unearthed future talent and served as a launchpad for many of the local industry’s most respected names since its inception in 1998. These include MmusoMaxwell, Jacques Bam, Fikile Zamagcino Sokhulu, Michael Ludwig Studio, Saint Vuyo and Sipho Mbuto.   Bizcommunity

Pepkor expands to South America with acquisition of Brazil’s Avenida

JSE-listed Pepkor, which owns retail brands including Pep, Ackermans and Incredible Connection, has acquired Brazilian value retailer, Avenida, effective from 4 February 2022. Pepkor, which is Southern Africa’s largest retailer by store footprint, plans to significantly grow Avenida’s presence in Brazil.

Representing less than 4% of Pepkor’s market capitalisation, the transaction enables Pepkor to partner with Avenida’s founder-led management team in Brazil to “unlock significant growth” in the largest economy in Latin America, the retail group said.

Pepkor said that after more than two years of research into emerging market opportunities and a thorough due diligence by management and various advisors, Avenida was identified as a strong strategic fit.

Operating in the low end of the Brazilian retail market with a diversified product mix across its 130 stores, Avenida has a market-leading presence in core regions of Brazil. A lower to middle-income population of approximately 212 million people provides enormous potential to exponentially increase its store base and revenue, Pepkor said.

Emerging market with growth potential

Pepkor has successfully replicated its discount and value business model within emerging markets, having previously owned Pepco in Central and Eastern European – growing this business grew from 13 stores to more than 3,500 today.

Pepkor’s CEO, Leon Lourens commented: “We are excited about this new chapter for Pepkor to enter a new geography with enormous growth potential. Pepkor has proven to be successful in the international expansion of its business model in the past and we look forward to entering the Brazilian retail market in partnership with the Avenida management team.

“The combination of Avenida and Pepkor brings together the required capital, retail synergies and the collective know-how to bolster Avenida’s growth in years to come. I believe that together we will be able to build and grow Avenida to become a giant in Brazilian value retail.”
Preliminary financial results for the 2021 financial year indicate that Avenida was able to comfortably surpass 2019 sales levels with a turnover of BRL 773m.

Avenida’s CEO, Rodrigo Caseli said: “As founders of the Avenida business we are proud to join a globally respected value apparel group such as Pepkor and look forward to expanding and growing the Avenida business in Brazil. We are excited to leverage the core assets and competencies of the Pepkor Group as we continue our journey to fulfill our huge potential.”

Pepkor said Avenida is a compelling addition to the group due to its high levels of corporate governance and reporting, a proven business model in Brazil and a similar culture and values to those of Pepkor.   Bizcommunity

Pepkor – trading update

Revenue for the quarter ended 31 December 2021 increased by 1.3% to R22.8 billion. Excluding the disposal of John Craig in the prior year revenue increased by 1.8%. Growth in revenue was impacted by the strong base in the comparable quarter in the previous financial year and 161 looted stores that had not yet reopened at the start of the quarter following the civil unrest in Kwa-Zulu Natal and Gauteng during July 2021. Lower revenue in the Fintech segment resulting from a change in product mix and accounting treatment further weighed on group revenue growth.

The process to refinance funding of R5.0 billion repayable in the 2023 financial year is progressing well and is expected to be completed by March 2022. The funding will be extended over a longer term at lower interest rates and will further strengthen the group’s liquidity and debt repayment profile.

During the quarter ended 31 December 2021 the group opened a total of 102 new stores and Pepkor’s growth plans remain on track to open more than 300 new stores in the current financial year.

Truworths – business update and trading statements

Truworths International Ltd. (the ‘Group’) announces that both of its main markets, South Africa and the UK, continue to be impacted by the COVID-19 pandemic. Despite these macro challenges, Group retail sales for the 26-week period ended 26 December 2021 increased by 2.0% to R9.9 billion.

Earnings
Amidst the ongoing challenging trading conditions, the Group estimates that its headline earnings per share (‘HEPS’) for the current period will increase by between 29% and 34% to between 438 cents and 455 cents relative to the prior period HEPS of 339.3 cents. The Group further estimates that its earnings per share (‘EPS’) for the current period will increase by between 43% and 48% to between 443 cents and 458 cents relative to the prior period EPS of 309.5 cents. For information the Group reported HEPS and EPS for the pre COVID-19 26 week period ended 29 December 2019 of 364.9 and 364.7 cents respectively.

Shareholders are advised that this business update and trading statement does not constitute an earnings forecast, that the financial information provided herein is the responsibility of the directors, and that such information has neither been reviewed nor reported on by the Group’s external auditors. The Group’s interim results for the current period are scheduled for release on or about Thursday, 17 February 2022.

TFG – Q3 trading update

Salient features:
*Strong performance in Q3 FY2022 with Group retail turnover growth of 17,3% compared to Q3 FY2021, with significant growth over the important Black Friday period (growth of 19,3% in November 2021 compared to November 2020) and over the festive period (growth of 19,8% in December 2021 compared to December 2020);
*TFG Africa delivered strong retail turnover growth of 17,3% in Q3 2022 compared to Q3 FY2021 (with growth of 13,9% in November 2021 compared to November 2020, and with December 2021 pleasingly exceeding expectation with growth of 23,0% compared to December 2020);
*Cash retail turnover growth for TFG Africa of 16,6% for Q3 FY2022 compared to Q3 FY2021 and 41,6% for the nine months to December 2021. Cash retail turnover now contributes approximately 70,8% to total TFG Africa retail turnover for the nine months to December 2021;
*TFG London’s performance continued to improve in Q3 FY2022 with retail turnover growth of 25,5% (GBP) compared to Q3 FY2021;
*TFG Australia’s retail turnover growth of 16,9% (AUD) in Q3 FY2022, compared to Q3 FY2021 (and against a Q2 FY2022 decline in retail turnover of 16.6% due to severe lockdown measures), showed a strong trade rebound as lockdown restrictions were eased in most states by November;
*Group online retail turnover growth of 17,8% for the nine months to December 2021 off a very high base in the comparable prior period; and
*Continued investment in growth through organic investments (including a further 127 store openings in TFG Africa in Q3 FY2022, an increase in manufacturing capacity and strategic IT projects); and through acquisitions as previously announced.

Outlook
Although the trading environment across all three our main territories is expected to remain challenging, we are encouraged by the trading performance in Q3 FY2022. This level of performance has continued in the first few weeks of January 2022 and has led, amongst other key categories, to record retail turnover in the kidswear and school clothing categories for TFG Africa, largely due to Jet’s first meaningful contribution to these categories.

Mr Price – trading update

During the third quarter from 3 October 2021 to 1 January 2022 (the “Period”) of the financial year ending 2 April 2022 (FY2022), the group recorded growth in retail sales and other income (“RSOI”) of 19.2% to R9.3bn. This included the recently acquired Power Fashion and Yuppiechef businesses, excluding which RSOI grew 7.2% to R8.3bn.

South African retail sales grew 5.8% (comparable stores 4.0%) to R7.4bn. Store sales increased 6.0% as consumers became more comfortable in the physical retail setting again. This was most evidenced in the group’s larger format stores located in the super regional and regional shopping centres which performed strongly. Non-South African corporate-owned stores sales grew 0.4% to R554m.

Outlook
The short-term improvements in the trading environment are encouraging. However, the group anticipates further uncertainty for the foreseeable future. Rising input costs and exchange rates are expected to lead to higher merchandise inflation in the new financial year. Focus remains on strong merchandise execution to continue growing the core business and ensuring its investments into growth deliver to expectations.

Woolies – trading update

Group turnover and concession sales for the 26 weeks ended 26 December 2021 (‘current period’ or ‘period’) decreased by 2.1%, compared to the 26 weeks ended 27 December 2020 (‘prior period’) and by 0.3% in constant currency terms. Online sales grew by 22.4%, contributing 13.7% to the Group’s total turnover and concession sales for the period. Sales in the last six weeks of the period increased by 3.0%, and by 3.5% in constant currency terms.

Shareholders and noteholders are referred to the announcement released on the Stock Exchange News Service on 17 November 2021 and are advised that earnings per share (‘EPS’), headline EPS (‘HEPS’) and adjusted diluted HEPS (‘adHEPS’) for the current period are expected to be within the ranges reflected in the table below, with adHEPS no longer expected to decline by more than 20% relative to the prior period.

December 2021 expected range (%)
*EPS: -35.0% to -45.0%
*HEPS: -30.0% to -40.0%
*Adjusted diluted HEPS: -30.0% to -40.0%

December 2021 expected range (cents)
*EPS: 158.8 to 187.7
*HEPS: 156.7 to 182.8
*Adjusted diluted HEPS: 155.0 to 174.3

                                                                                                               Did you know……..

The most talked about Oscars dresses of all time

Whoopi Goldberg, 1993

Underneath the comedian’s purple satin skirt was a pair of paisley pants and a blindingly-green lining.

To Advertise…..   Click here to see fact sheet with advertising rates. 

Editorial Submission:

Please remember to send me your news so that we can share it with all our readers in the weekly newsletter. Although editorial is neither guaranteed nor implied, suitable editorial for consideration may be submitted to:-