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We take a look at earnings numbers coming through for South African retailers that show they are all feeling the pinch, and so are their share prices, with most retailers (especially clothing retailers) shares taking a pounding the last 3months . (Share price performance was collected of sharenet's website
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Retailer blues
The graphic below shows share price performance of various retailers over the last 3months. And its clear from this that Mr Market is not keen on South African retailers at the moment. Note this graphic was drawn up 15 November 2016.
The discussion following the graphic was written 15 November 2016 and follows below in Italics.
"The graphic clearly shows how hard retailers (and in particular clothing retailers such as Mr Price) has been hit over the last couple of months. With Mr Price losing over 40% of it's value in 3months. RexTrueform (owner of Queens Park) that hasn't lost any value over the last 3months has basically remained unchanged due to it's shares hardly ever being traded.
Mr Price reported half year results for period ending September 2016, in which diluted headline earnings per share dropped by 13.7% compared to previous period (and this while revenue increased), indicating margins being squeezed. Part of this was blamed on a hotter than usual winter in which retailers over stocked on winter's clothing and lower than expected sales, leading to retailers discounting winters clothing to move stock. Affecting their margins negatively.
The Foshini Group reported a very modest growth in diluted headline earnings for 6 months ended end September 2016 of 5.9%, and this on the back of retail turnover being up almost 17%
"The graphic clearly shows how hard retailers (and in particular clothing retailers such as Mr Price) has been hit over the last couple of months. With Mr Price losing over 40% of it's value in 3months. RexTrueform (owner of Queens Park) that hasn't lost any value over the last 3months has basically remained unchanged due to it's shares hardly ever being traded.
Mr Price reported half year results for period ending September 2016, in which diluted headline earnings per share dropped by 13.7% compared to previous period (and this while revenue increased), indicating margins being squeezed. Part of this was blamed on a hotter than usual winter in which retailers over stocked on winter's clothing and lower than expected sales, leading to retailers discounting winters clothing to move stock. Affecting their margins negatively.
The Foshini Group reported a very modest growth in diluted headline earnings for 6 months ended end September 2016 of 5.9%, and this on the back of retail turnover being up almost 17%
While Truworths reported revenue growth of around 44% year on year in their latest results, growth in profits only reflected a 13% increase. Mirroring the trend shown by the other clothing retailers.
Woolworths reported pretty slow sales numbers for the 19 week period ending 6 November 2016. With Woolworths Group sales being up 8.9%. But this is a little deceiving as upon closer inspecting that growth comes from the increase in sales of their Food division that showed growth of over 9%. Woolworths had the following to say regarding their clothing.
"The start to the financial year in both South Africa and Australia was impacted by an extremely warm winter and consequent very high levels of promotion, as all retailers sought to clear stock. As summer arrives, we are seeing sales improve, albeit in challenging conditions in both markets."
While blaming the warmer than usual weather is a easy way out for retailers there are other more serious reasons behind the decline in the performance of the clothing retailers (and to a lesser extent all retailers). One of the big reasons why South African clothing retailers are struggling is Cotton On and H&M.
These two clothing retailers caught the South African clothing retailers napping by aggressively expanding and capturing market share at a alarming rate. It also highlighted the fact that the type of garments sold at South African retailers seem to miss the spot, sending shoppers to Cotton On and H&M. While the SA clothing retailers would be slow to admit this there is no denying the expansion of these brands had and will continue to have a negative affect on the South African clothing retailers.
The other factor is the struggling South African economy, and higher interest rates, which has reduced available disposable income for South Africans and therefore reduced the amount consumers have available to spend on clothing items. People would rather buy food and ensure a roof over their head instead of another item of clothing. Maslow highlighted it in his hierarchy many many years ago.
Woolworths reported pretty slow sales numbers for the 19 week period ending 6 November 2016. With Woolworths Group sales being up 8.9%. But this is a little deceiving as upon closer inspecting that growth comes from the increase in sales of their Food division that showed growth of over 9%. Woolworths had the following to say regarding their clothing.
"The start to the financial year in both South Africa and Australia was impacted by an extremely warm winter and consequent very high levels of promotion, as all retailers sought to clear stock. As summer arrives, we are seeing sales improve, albeit in challenging conditions in both markets."
While blaming the warmer than usual weather is a easy way out for retailers there are other more serious reasons behind the decline in the performance of the clothing retailers (and to a lesser extent all retailers). One of the big reasons why South African clothing retailers are struggling is Cotton On and H&M.
These two clothing retailers caught the South African clothing retailers napping by aggressively expanding and capturing market share at a alarming rate. It also highlighted the fact that the type of garments sold at South African retailers seem to miss the spot, sending shoppers to Cotton On and H&M. While the SA clothing retailers would be slow to admit this there is no denying the expansion of these brands had and will continue to have a negative affect on the South African clothing retailers.
The other factor is the struggling South African economy, and higher interest rates, which has reduced available disposable income for South Africans and therefore reduced the amount consumers have available to spend on clothing items. People would rather buy food and ensure a roof over their head instead of another item of clothing. Maslow highlighted it in his hierarchy many many years ago.
Now when we take a look at the above graphic again, but look at it over a longer period, say the last 12 months. The picture changes only slightly. The majority of retailers share price is still in the negative when compared to 12months ago. Although there are a few that have shown positive growth over the last 12 months.
Investors should remember the following statements when they are considering selling when prices have dropped off substantially already:
Hold hart investors who hold shares in listed retailers. Things will turn around and the sun will shine on them again. Find a solid company with great brands and good track record. Buy at cheaper prices and patiently wait it out. Word of caution. Do not invest any money in any share that you cannot afford to lose.
- 1. Its only a loss if you sell. If you keep holding it's only a loss on paper and you can still make your money back should share prices recover
- 2. Be greedy when others are fearful, be fearful when others are greedy. Savvy investors are buying when the chips are down, as their future earnings potential probability is so much higher
- 3. The greater the risk the greater the potential reward
- 4. It is always darkest before dawn.
Hold hart investors who hold shares in listed retailers. Things will turn around and the sun will shine on them again. Find a solid company with great brands and good track record. Buy at cheaper prices and patiently wait it out. Word of caution. Do not invest any money in any share that you cannot afford to lose.