Trust Steinhoff to come up with a new form of reporting: sustainable earnings. The retailer’s accounts are a trial in perseverance at the best of times and now investors have the option to pick between basic earnings per share (EPS), diluted EPS, sustainable EPS and diluted sustainable EPS for the six months to March.
On all metrics, Steinhoff shows a drop in profitability for the period, but the company does have 15% more shares in issue, after swallowing up the businesses of the UK’s Poundland and US mattress giant Mattress Firm in 2016.
In the case of Mattress Firm, it has taken a big, expensive gamble on a company that operates at lower margins than the rest of its household goods division, which remains the bedrock of its sales, at 62% of revenue.
Its entry into the US also got off to a lumpy start after a break-up with key supplier Tempur Sealy in January. While Steinhoff has now struck a new supplier deal with Serta Simmons, the US’s largest mattress maker, Steinhoff admits there are still a "few holes" on its shop floors and a $100m, 18-month combined advertising blitz only just beginning to kick in.
Investors will hope Markus Jooste’s excitement about Mattress Firm is not misplaced. He sees margins in the US reaching those of the other bedding divisions by about 2020.
Investors may also be relieved that Steinhoff’s relationship with Tempur Sealy has not suffered as a result.
It is not obvious what the kicker will be for a rerating in Steinhoff’s price:revenue ratio. Its revenue, stripping out acquisitions, was 7% higher for the period and its organic margins are just 20 basis points up, with the full effects of Brexit and now SA’s recession yet to take effect.
Rex Trueform, which owns the Queenspark fashion chain, has traditionally been out of sync with the mainstream fashion retailers on the JSE. While Truworths, Foschini and Mr Price have had their share of problems in this lean trading environment, prospects for RexTru seem so much more threadbare.
On Wednesday, RexTru said earnings for the year to June would plunge at least 65% from the 57.1c per share posted in the previous financial year.
Posting earnings of 20c a share may not appear to be a train smash. But the severity of the second-half downturn is clear when realising RexTru reported 22c per share in earnings in the first six months.
It means Queenspark was trading at break-even at best in the second half. Margins presumably have been shredded.
The financial results will not be pretty, but the bigger picture for RexTru is intriguing. HCI founder and empowerment pioneer Marcel Golding, with low-key investor Hugh Roberts, recently took a stake in RexTru. Voting control, through an archaic pyramid structure, remains with the Shub family.
The big question is whether Golding and Roberts can add value, perhaps by bringing in new retail assets, or even new operational interests, into what is clearly a tired RexTru.
The Shub family appeared to frustrate the previous empowerment shareholder Brimstone, prompting it to sell out.
The gut feel is that RexTru, which still had R70m in cash at the end of December, needs fresh strategic input sooner rather than later.
- Neels Blom edits Company Comment (blomn@bdlive.co.za)
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