Newsletter No.44                                    17 November 2017

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Mr Price cuts its cloth to suit a higher share price

Retailer Mr Price’s turnaround strategy has paid off as the group expects earnings per share to climb as much as 25% for the 26 weeks to September 2017.

Credit: Freddy Mayunda

The share price jumped 11% to R169.99 after the announcement. The momentum continued for most of the trading session, with the share eventually closing at R192.25.

Diluted headline earnings per share are expected to rise between 421.4c and 439c.

Portfolio manager at Gryphon Asset managers Casparus Treurnicht said although the company did not give much information, it was clear that the guided range was significantly higher than the market expected.

“After Truworths and TFG came forward last week there might be a combination of short positions being covered and a sigh of relief,” Treurnicht said.

Mr Price’s share price recovery came after it lost 20% in 2016. The main losses came in August 2016 when the company lost 16% in one day after releasing a disappointing trading statement. The share price has since gained about 20% in 2017.

In its 2017 annual results presentation in March, Mr Price CEO Stuart Bird said that the strategy going forward would focus on improving the quality of merchandise while applying an everyday low-price pricing strategy and integrating technology to improve operations and customer experience.

Much like the rest of the retail sector, Mr Price has been affected by weak and declining consumer spending, which continued into the first half of 2017. The retailer’s recovery has been boosted by a number of factors.

Equity analyst at Vele Asset managers Matthew Zunckel said that judging by the positive trading statement the recovery of Mr Price was bumped up by a change in its procurement model, which was the main driver of growth.

The company previously faced issues of procurement and the quality of its merchandise was a constant complaint from consumers in 2016, among other misgivings.

A report on the retail sector conducted by advisory firm EY found that retailers were changing supply chains to create more flexibility and quicker turnaround, while retail customers were shifting expenditure habits.

Portfolio manager at Cratos Wealth Ron Klipin said that in a tight fiscal environment, affordability had become the main theme among consumers and Mr Price continued to dominate that market.

Zunckel said the company “continues to fill the niche gap for lower LSM groups”.

Being a cash business in a climate in which credit growth is rather dismal and unemployment has reached record levels, selling for cash has given Mr Price an advantage.

Klipin said previously that there was a paradigm shift among consumers to stretch their rand as far as they could.

As people were less inclined to buy on credit, it would benefit cash retailers such as Mr Price, but would hurt others that operated largely on credit, such as Truworths.

Mr Price has a market capitalisation of R43bn and also owns Miladys, Sheet Street and Mr Price Home.

Although the second half of 2017 gave some slight relief for the sector, it has remained under pressure.

Analysts forecast that clothing retailers are likely to see single-digit growth in the short to medium term as low sales, worsened by weak economic growth and international competitors entering the market, continue to put the sector under pressure.

Business Day

Renecap (Pty) Ltd T/A 8th Avenue Trading

Décor textiles are good enough for the USA – Why not for South Africa

We repeatedly ask ourselves this question.  However,  in spite of  the efforts made to represent   PROUDLY SOUTH AFRICA , the multi retail chain stores who we used to supply discontinued buying our products at short notice without any logical reason.

We were assured at the time that the door to future business would never be closed. Regrettably it has not been the case.    The exception has been Mr. Price Home who have continued to support the domestic textile industry to the extent that the style of merchandise bought by Mr. Price from Renecap some years ago is still being sold.

Why Africa? …. For its originality

We remained motivated, with the foresight that ~Africa~ would grow in popularity,  irrespective of Chinese and Indian price points.     The bulk of the products that we produce are woven not printed and with no minimum meterage conditions.    The major fabric printers cannot compete with this in design,  shade and texture.

Certain sectors of the RSA Fashion Industry,  including footwear and decor,  have been using our fabric concepts in the manufacturing of their respective products.

We can proudly confirm that some world renowned celebrities have purchased garments made with our fabrics.

Décor is our strength

From fashion to decor we have grown in stature with our brand label of 8^th Avenue Trading.

We have taken Africa to the World with its authenticity & custom,  inspired by its colourful tradition.

To export is our future

Besides SADAC our export sales have increased annually growing from 8000 -10,000 units per order.

Firstly it was Spain but now more extensively to the USA.

The positive consumer reaction to the seasonal African promotions within the stores of Homegoods Retail has been overwhelming.       We receive many calls from the USA from ‘Mr. Public’ enquiring about availability of stock that was sold out during their promotions.

Our recent May shipment to Homegoods of 12,000 units to the value of R1,600,000 was made up of  throws and cushions:  a drop in the ocean for the size of the USA market.

We thank Julia Wilson of Jasbri for her continued belief in us,  and for supporting our annual growing orders supplying Homegoods.

What the future holds.

We are extending our brand ~8th Avenue Trading~ into the USA market by the appointment of a resident USA agent who is no stranger to the Wholesale/ Retail, Decor Accessory Market of the USA and Canada. The concept of the appointment will filter through to the European markets by means of E-commerce – online businesses, namely Amazon,  and others,  which we are projecting will be another avenue of business to be pursued.

What can the ATF Exhibition offer us?

Taking everything into account, the past, the present and the future,  with hope we believe that our presence at the exhibition will lift Renecap (PTY) LTD out of the doldrums of the South African Textile Industry and become recognized for its ability to produce and supply the South African fashion and footwear industries of South Africa.

A question to Mr Rob Davis?

Why should small to medium textile manufacturing businesses not be  given the opportunity to be included on TRADE MISSIONS led by the Department of Trade and Industry?

The above comment is based on my own experience.

I have been  to Spain on a South African Trade Mission and have done 4 years of business with El Cortes Iglesias  (the major multi-store retail organization in Spain).

The satisfaction of seeing our products being sold on the floor in a foreign country is an exhilirating experience and is one worth striving for.

Local clothing retailers in for tough times

Clothing retailers are likely to see single-digit growth in future as low sales, worsened by weak economic growth and international competitors entering the market, continue to put the sector under pressure.

Clothing retailers are likely to see single-digit growth in future as low sales, worsened by weak economic growth and international competitors entering the market, continue to put the sector under pressure.

Weak and declining consumer spend, regulatory and political pressures, low credit growth and investment levels meant less buying power in the hands of consumers.

The IMF forecast SA’s GDP growth at 0.8% for 2017.

A recent report by advisory firm EY on the country’s retail sector for the first half of 2017 said the retail spend had recovered during the period .

However, senior equity analyst at Sasfin Wealth Alec Abraham said apparel retailers would at best experience single digit growth in the 2018 financial year as they continue to come under pressure from a weak economic climate.

“I don’t think it will get significantly better for any of the retailers,” he said. The clothing retail pie was getting smaller and being aggravated by international competitors who were gobbling up the market share of local retailers.

Portfolio manager at Cratos Wealth Ron Klipin said that while there had been a slight bounce-back from a very low base in the second half of 2017, it was likely that consumers would struggle into 2018. “Perhaps we will have a reasonable Christmas season, but people will be looking for value for money, impacting spending into 2018.” There was a paradigm shift among consumers to stretch their rand as far as they could. As people were less inclined to buy on credit, it would benefit cash retailers such as Mr Price, but would hurt others such as Truworths that operated largely on credit, Klipin said. EY’s consumer products and retail leader for Africa Derek Engelbrecht said although the sector was improving after a particularly tough 2016, returns on equity were still under pressure, particularly for fashion retailers faced with rising competition from global brands and falling sales volumes.

Last Monday, Truworths’ share price fell 2.08%, to R70.77. Mr Price slightly declined by 0.26%, to R176.80, while TFG, the owner of Markham and TotalSports among other brands, was trading 0.49% lower at R139.59. Woolworths was down 0.98%, to R55.48.

Lentus Asset Managers chief investment officer Nic NormanSmith said that based on factors such as the weaker economy and foreign competition, it was not surprising that share prices had been under pressure.

“High expectations coupled with less than favourable reality result in a double whammy of negative share price outcomes.”

Abraham said diversification in products, geographical location and target market were key to staving off some of the risk.

“It is always prudent to diversify your risk and TFG has spent a lot of time working on this,” Abraham said.

Business Day

Did you know………

Cotton is the most widely used clothing material, but it only became common in mid-1800s, when Eli Whitney’s cotton gin made it easy to separate the cotton fibers from the seeds.

Evidence for the first clothes dates somewhere between 100,000 to 500,000 years ago.