Retailer Truworths’s share price leapt by as much 11.75% in intraday trade on Wednesday as investors rewarded the company for its record high headline earnings per share result.
The share price of the owner of EarthChild, Naartjie and YDE capped 10 consecutive days of gains on Wednesday, its best performance since 2013.
In SA, Truworths sells formal and evening wear in addition to high-quality children’s clothing, primarily on credit, with muted competition as most of its peers sell more casual attire or are cash-based.
Truworths said the improvement in earnings was organic. Competitors TFG and Mr Price have boosted earnings with acquisitions in the past two years with Mr Price adding kitchenware brand Yuppie Chef and discount retailer Power Fashion, while TFG bought Jet.
Truworths is likely to be benefiting from a return to the office and a need for formal and event wear as school matric dances and cocktail parties have resumed after the pandemic.
The aspirational retailer stands to benefit from rising interest rates, as about 70% of SA customers buy on account and its 12-month repayment option is interest bearing.
The company has faced tough times in the UK where it impaired almost R5bn in its investment in shoe chain Office, but in the past year has reported a double-digit sales increase and reduced rentals, with some loss-making stores closed as their leases ended.
The performance vindicates CEO Michael Mark’s decision to stay at the helm even as calls mounted for him to step aside as he has been the boss for more than three decades.
All Weather Capital’s Chris Reddy said it is “pleasing” to see that the growth was organic rather than acquisitive, adding that Truworths saw “improved sales and strong gross profit margins” while also ensuring good expense management.
“The share ticks a lot of boxes,” Reddy said, adding that it is one of the highest dividend payers in the sector and was supported by share buybacks and an undemanding valuation.
In SA, where Truworths has among the highest gross margins of clothing retailers, sales rose 5%, the retailer said in a recent voluntary update for the 53 weeks to July 3.
However, it noted that it did not increase prices in the past year in SA and in fact recorded deflation of about 1%.
Truworths will release its full-year results on September 6.
Investors are waiting to see if any of the revenue improvement includes provisions, money set aside for bad debt that is not used and is released back into the company’s earnings a year or more later.
By the JSE’s close Truworths’s share price had gained the most since mid-February, up 4.79% to R60.
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