Release Date: March 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Truworths International Ltd (JSE:TRU, Financial) has maintained a robust balance sheet with a net cash flow and net debt of only ZAR124 million.
- The company has a diversified earnings and customer base, with significant contributions from both South Africa and the UK.
- Truworths International Ltd (JSE:TRU) has become a truly omnichannel business, with strong e-commerce performance, particularly in the UK where over 40% of sales are online.
- The company has a strong demand for its credit offering, with approximately 3 million active account customers and 20 million loyalty customers.
- Office UK, a subsidiary of Truworths International Ltd (JSE:TRU), has shown a significant turnaround since COVID-19, with strong support from brands and profitable new and modernized stores.
Negative Points
- Truworths International Ltd (JSE:TRU) faced several challenges in South Africa, including civil unrest, currency depreciation, flooding, load shedding, and port congestion.
- The company's sales growth was poor, with top-line sales growth being a significant issue.
- Employment costs and trade receivables increased by 8% and 9% respectively, impacting overall expenses.
- The company experienced shipping delays and stock shortages, particularly affecting sales in January and February.
- Bad debt increased significantly by 54% due to the provision last year, reflecting the challenging credit environment.
Q & A Highlights
Q: What is the impact of ongoing port congestion on office product acquisitions?
A: Michael Mark, CEO: The impact on office product acquisitions is similar to the challenges faced by Truworths, but not as severe. There have been some delays, but nothing significant at this stage.
Q: How should we think about office operating margins given the normalization of sales growth against cost growth, especially employment costs?
A: Michael Mark, CEO: We expect to maintain or slightly improve our margins in office despite the normalization of sales growth and rising employment costs. The management team is focused on containing these costs.
Q: How much stock is arriving later in the season and what impact does this have?
A: Michael Mark, CEO: Some stock that should have arrived in November was delayed to January, impacting sales. We expect this issue to be resolved by March, ensuring better stock availability for the peak winter season.
Q: Why are you confident that the Truworths brand will improve despite weak sales?
A: Sara Proudfoot, Joint Deputy CEO: We believe there are untapped opportunities within our existing brands and are re-evaluating our buying processes to differentiate and elevate our merchandise.
Q: What sort of gross book growth can you achieve if interest rates drop by 100 basis points?
A: Emanuel Cristaudo, CFO: Historically, lower interest rates have led to better performance. We expect improved book growth driven by better merchandise availability.
Q: What are your M&A objectives, and are there any restrictions?
A: Michael Mark, CEO: We are primarily focused on opportunities in the UK, potentially in different product categories that align with our existing customer base. We prefer to operate in markets where we can maintain control and manage effectively.
Q: Why are you building up cash in the UK instead of repatriating it to pay off overdrafts in South Africa?
A: Michael Mark, CEO: The cash is being retained in the UK to fund new store openings and potential acquisition opportunities. Additionally, the declining rand has historically favored keeping cash in the UK.
Q: How are you managing the seasonality of stock in the UK?
A: Michael Mark, CEO: We carefully manage stock to ensure the right products are available at the right time, balancing winter and summer inventory to meet customer demand.
Q: What is the outlook for Truworths and Office UK?
A: Michael Mark, CEO: We are cautiously optimistic about South Africa in the medium term and very positive about Office UK due to strong sales and new store opportunities.
Q: How are you addressing the challenges in the South African market?
A: Michael Mark, CEO: We are focusing on maintaining a strong balance sheet, managing costs and margins, and leveraging our aspirational brands to navigate the tough economic environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
