Building material retailer Cashbuild could be in for another tough financial year after its first-quarter revenue fell 4% year on year, suggesting that the DIY market is still taking strain following the lifting of lockdown restrictions.
The DIY market was one of the few bright spots during the early days of the pandemic when people were confined to their homes, with many undertaking home improvements. But the trend has since reversed as many people having returned to the office.
Households’ discretionary spending is being increasingly eroded by rising inflation and interest rates, which bode ill for building materials retailers.
In a preliminary operational update on Tuesday, Cashbuild reported a revenue fall in the three months to end-September compared with the same period a year ago. Transaction volumes across the group dropped 7% in the quarter.
Investors reacted negatively to the news, sending the share price down 6.07% to R195.37 on the JSE, its biggest one-day drop since late August, according to Infront data. That gave the company a market valuation of R4.8bn.
Cashbuild was for a long time counted as one of the market darlings, but its share price has steadily been unravelling since peaking at R500 in March 2018 as its earnings growth lost momentum.
The company caters predominantly to low-income earners in townships and rural areas, where the market is most susceptible to rises in the cost of living. It has 314 stores spread across SA and neighbouring countries including Lesotho and Eswatini.
“I think the lower- and middle-income consumer is already under pressure, and times will continue to get worse,” said Casparus Treurnicht, portfolio manager at Gryphon Asset Management.
“Even if Cashbuild’s selling price inflation is not sky high, the consumer is suffering in general, putting disposable income under pressure. The base following the looting of last year was set low and still the numbers do not recover.”
Selling price inflation was 4.8% during the quarter, compared with 10% in the prior comparable period.
Cashbuild was hit by the unrest in Gauteng and KwaZulu-Natal in July 2021, during which 36 of its stores were looted and damaged.
During the first quarter, the group closed four Cashbuild stores, two each in Zambia and SA.
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