Is Truworths prone to credit risk?

22 Mar, 2019 - 00:03 0 Views
Is Truworths prone to credit risk? Clothing retailer Truworths has had to close their doors for the entire duration of the lockdown

eBusiness Weekly

Tawanda Musaruwa
Clothing retailer Truworths posted an 18,7 percent rise in revenues to $10,21 million in the half-year to January 6, 2019 from $8,605 million previously.

The improvement in bottom-line was driven by a 16,6 percent growth in retail merchandise sales. However, analysts view the listed clothing retailer as highly dependent on credit sales, which presently account for 62 percent of total retail sales.

Said analysts at Morgan & Co: “While multiples look good, the business remains a net importer whose bottom line is driven by finance income from credit sales.

“Credit risk will have to be effectively managed.”

Observers say although the company’s margins during the half-year increased,
they are likely to slide going forward as increased import duty should affect the cost of fabrics.

Inflationary pressures are likely to persist over the few months on imported finished product lines following the floating of foreign currency trading by the country’s monetary authorities last month.

In respect of Truworths’ credit sales, the number of active accounts increased by 2,7 percent over the comparative period to 92 820, of which 13 449 were on the Instore Credit Card at the close of the half-year.

The company reported a spike in impairments, with the provisions for bad loans increasing by 11,8 percentage points to 20 percent from 8,2 percent in the prior comparable period after the new International Financial Reporting Standard 9 (IFRS 9) kicked in.

“IFRS 9 was adopted retrospectively on July  9, 2018 with an adjustment to the Group’s opening retained earnings. Comparative financial statements were not restated as permitted by IFRS 9,” said the company.

In terms of the company’s financial performance, an operating profit margin of 28,8 percent was achieved against 18,5 percent previously.

Profit for the period closed at $1, 5 million.

The group’s inventory increased by 11,6 percent to $4,2 million while trade receivables went down by 10,4 percent to $8,6 million.

Trade payables marginally increased by 0,8 percent to $1,9 million.

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