Credit use boosts Truworths sales

• Fashion retailer expects earnings to jump 10% in interim results despite load-shedding

Fashion retailer Truworths has seen increased demand for its goods while also reporting a doubledigit increase in what is owed by account holders as more consumers buy on credit. Its share closed 4.17% higher at R66.22 after the retailer issued a trading update.

Fashion retailer Truworths has seen increased demand for its goods while also reporting a double-digit increase in what is owed by account holders as more consumers buy on credit.

Its share closed 4.17% higher at R66.22 as the retailer said in a trading update that interim headline earnings per share to end-December will rise 8%-11% to R4.85-R4.98 for the half-year ended January 1.

Part of the increase is due to a reversal of impairments in the UK, where some of its struggling Office shoe stores are doing better than before.

Data from retailers in recent trading updates suggests consumers, who face increased food inflation and costs of mitigating load-shedding, are turning to credit for clothing.

Truworths said active accounts in SA rose from 2.6million to 2.8-million, a 5.7% increase, while money owed by account customers increased nearly 20%.

Truworths, whose brands in SA include Identity, YDE, Uzzi, Earthchild, Ginger Mary, Fuel and Sync, sold 70% of goods in SA on account, up from 68% in the previous period.

In the recent nine-month trading update Woolworths reported an increase of 17.2% in its financial services book, which includes new in-store accounts and general credit cards.

TFG, owner of Foschini and Markham, posted an 11.3% increase in credit turnover in the nine months to end-December.

Mr Price’s results for the 13weeks to end-December showed an almost 4% drop in sales in same stores, which could be because its fashion choices did not resonate with consumers, or because most of its sales are cash-based.

It said last week that “credit continued to be the preferred short-term tender type, a signal of consumer distress and limited disposable income”.

Sasfin analyst Alec Abraham said: “I think that the fact that both Truworths and the latest National Credit Regulator stats report a substantial increase in applications for credit, show that people are stretched.”

However, the regulator, Mr Price and Truworths also reported a higher rejection rate for credit, suggesting it is not being granted recklessly.

Truworths, which charges interest on its 12-month accounts, also stands to get a boost in income from rising interest rates, said Abraham, unless there is a substantial increase in bad debt, which he does not think is likely.

Truworths accounts in good standing only dropped marginally from 85% to 84%.

Abraham said the latest available data from the National Credit Regulator and credit bureau TransUnion show only a marginal increase in bad debt.

Truworths group retail sales, which include those from Office, rose 13.7% year on year to R11.3bn.

While rolling power cuts are a problem, Truworths said all of its SA stores were able to trade as load-shedding persisted. But the company warned that despite its continuous assessment of the power needs of its stores, load-shedding is likely to result in fewer people going to malls, especially those with no backup power.

TRUWORTHS, WHICH CHARGES INTEREST ON ACCOUNTS, ALSO STANDS TO GET A BOOST IN INCOME FROM RISING RATES