Italtile, SA’s biggest retailer and manufacturer of tiles, bathroom ware and related products, reported weaker earnings as consumers cut back on home improvements amid economic uncertainty, interest rate hikes, high inflation and other economic factors squeezing their disposable income.
This also comes off the high of the Covid-19 pandemic during which the company’s brands CTM, Italtile Retail, TopT and U-Light as well as competitors such as building materials retailer Cashbuild, benefited from people spending more on home upgrades while they worked from home.
“Across the industry, foot traffic and transaction numbers declined to lower levels than prepandemic, which is largely a function of difficult economic conditions and unwinding of the pandemic-related home improvement boom,” CEO Lance Foxcroft said.
“Consumers are increasingly cost-conscious, reflected by a marked responsiveness to promotions and deals and the trend to buy down in ancillary categories such as brassware, adhesives and sanitary ware,” he added.
Founded in 1969, the company has 214 stores in nine countries — including SA, Namibia, Botswana, Lesotho and Eswatini — of which about one-third are franchise outlets.
Trading profit, net income generated from the sale of goods and services, declined 7.9% year on year to R1.38bn and profit for the period 6.7% to R997m.
These results come despite higher revenue as the cost of sales rose due to the increased cost of fuel, imported raw materials, equipment maintenance and property-related expenses.
In terms of the different segments of the business, manufacturing generated the most profit before tax with more than one-third, followed by retail (21.9%) and franchising (17.2%).
However, the company still declared an interim dividend of 32c per share.
Smalltalkdaily analyst Anthony Clark commended the company’s performance as it continued to pay dividends despite challenges such as load-shedding cutting down the production time of its factories.
“Italtile’s results, while slightly negative, continue to show that it remains the undisputed leader of the pack in the building, DIY and renovation sector,” he said.
Italtile is looking to remain competitive despite the weak consumer, by offering value thanks to lower shipping rates and lower prices globally. It buys 75% of goods locally including some from local importers, while the rest is bought directly from abroad.
CFO Brandon Wood told Business Day: “We’ve challenged our procurement guys who work in imports to look for deals ... for our customers. We’ve identified quite a few opportunities, most of them from China.”
The prices of raw materials used in the manufacturing of tiles and bathroom ware such as lasers and chemicals have also dropped. Manufacturing accounts for 40% of profit while rising input costs “was a big drag on the group results”.
But Wood said the company is working to make manufacturing more efficient and cost-effective. “We are confident that there’s good value to be to be extracted out of the manufacturing business.”
Off the grid
The company also has two retail stores that are completely off the grid, relying solely on solar and battery backup. About 40 stores have solar power.
One of the off-the-grid stores is in Protea Glen, Soweto, and the other on the West Rand at Clearwater Mall. Neither was getting reliable power.
“Because of not being able to get power from the municipality, we really have had no choice but to go completely off grid,” said Wood.
“We invested in battery backup. It’s very expensive, obviously,” said Wood. “I think it’s proving to be a good test case for the rest of our stores.”
The company would only consider battery and solar and cutting out electricity supply if it makes economic sense.
Updated: February 13 2023
This article has been updated throughout.
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