Truworths is going sideways

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Truworths is going sideways
Credit: © Reuters.

Truworths (JO: TRUJ ) has released a business update and trading statement for the 26-week period ended 26 December 2021. The group operates in South Africa and in the UK, which means it has dealt with everything from civil unrest to Omicron-related tightening in the UK. There are still 6 stores that remain closed due to the fire damage in the malls in which those stores are located. The group also highlights the international supply chain issues which have negatively impacted

on trading.When an announcement starts with a paragraph detailing numerous operational challenges and macroeconomic headwinds, it's usually the case that the sales result isn't fantastic. Truworths' group retail sales only increased by 2% in this period vs. the comparable period.

Sales on store account comprised 51% of group sales in this period. Account sales grew 1.3% and cash sales grew 2.7%.

There's a different story at net profit level, which is why the share price closed slightly higher on this result. Headline Earnings Per Share (HEPS) will increase by between 29% and 34% to between 438 cents and 455 cents. Investors will need to wait for the full result to be released on 17 February to see where the cuts were made that drove this profit result.

Truworths Africa

Local sales could only manage 1.4% growth, with account sales up 1.3% and cash sales up 1.5%. That's a pedestrian result of note when compared to the likes of The Foschini Group (JO: TFGJ ) (TFG).

Account sales in the local business comprised 68% of retail sales, in line with the prior period. Online sales increased 32% and contributed 2.2% to the segment's total sales.

Truworths has had a difficult time recently as its product range has not benefitted from inflation. In the comparable period, product inflation was 0.0%. In the latest period, there was deflation of 2.4%. This means the group needed to increase volumes by 2.4% just to achieve flat sales.

The gap between this performance and the sales results from TFG and (to a far lesser extent) Mr Price is breathtaking.

Truworths decreased its trading space by 0.2% in this period and expects this to remain unchanged in the next financial year. It's not difficult to identify which group is currently playing defence.

Office (the UK business)

Sales increased by 8.1% in local currency and 3.9% in rand terms. Online sales contributed 47% of total sales, well down from 59% last year and in line with the logic of people being able to return to stores.Trading space decreased by a substantial 14.7% and is expected to drop another 11% in the 2022 financial year. The office is shutting down unprofitable stores as leases expire or opportunities to exit leases become available.

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