SA’s biggest retailer and manufacturer of tiles, Italtile, is closely watching a possible jump in pipeline gas prices that could hit the affordability of its products and its margins.
The firm is waiting for an announcement from the National Energy Regulator of SA (Nersa) and Sasol that could see prices almost double — a scenario that would further squeeze consumers battling with interest-rate hikes and what Italtile CEO Lance Foxcroft calls “deteriorating political, social and economic conditions”.
This is dampening investment sentiment and “influencing cost-conscious homeowners to defer or scale down on renovation and building projects”.
A further deterioration in discretionary spending will lead to competition becoming more aggressive in the fight for a share of the market and consumers’ expenditure, Foxcroft said.
Established in 1969, Italtile has 211 stores, after opening five new stores in 2022, and targets the LSM 4-10 customers under its retail brands CTM, Italtile Retail, TopT and U-Light.
The R20bn-plus company benefited from the strict lockdowns of the Covid-19 pandemic, which encouraged locked down consumers to splurge on their homes to make them suitable for remote working and studying.
But consumers are now spending more on recreational activities and travelling after the government lifted restrictions and vaccination rates increased. This reduced the footfall at Italtile’s stores and across the sector as demand subsided, Foxcroft said in its end-June statement.
Meanwhile, global supply chain disruptions persist as the war in Ukraine drags on and China maintains its zero-Covid policy. Load-shedding and local rail and port problems put further strain on the supply chain.
This is leading to price volatility, instability in the market and high inflation, which is pushing up operating costs and squeezing the discretionary spending of consumers.
Headline earnings per share (Heps) increased 8.6% to 152.1c and the dividend per share was up 8.9% to 61c. Trading profit is up 3.8% to R2.7bn as average price inflation of 8% offset lower sales volumes.
Small Talk Daily analyst Anthony Clark praised Italtile’s results while its competitor, Cashbuild, on Tuesday flagged a fall in Heps of more than a third for its 2022 year.
“The fact that Italtile can show a modest decline in revenue, still expand its gross profit margin and show a record trading profit is commendable in what is an extremely difficult and challenging environment,” he said.
Update: August 25 2022
This article has been updated with more comment.
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