Italtile cut its dividend as its profit was down more than a tenth in its annual results, which SA’s biggest retailer and manufacturer of tiles, bathroom items and related products said “failed to meet our expectations”.
The company, valued at about R16.4bn on the JSE, said on Monday in its results for the year to end-June that its profit was down 14% to R1.7bn, headline earnings per share (HEPS), a common profit measure in SA, down 13% to 132.3c and the annual payout was reduced by the same margin to 53c.
“Disappointingly, difficult trading conditions and internal inefficiencies affected our SA businesses negatively, though our East African and Australian operations delivered better results. Improvement strategies are being implemented in the SA manufacturing entities,” CEO Lance Foxcroft said.
The vertically integrated group that manufactures tiles and homeware, which it sells in retail stores, said its manufacturing division struggled in part because factories were not working at capacity due to lower consumer demand.
This resulted in a decrease in gross profit margin from 45.8% to 43.2% in that division.
The group’s CFO took on an oversight role at Ezee Tile, which makes tile adhesives, and will continue to supervise operations until June 2024 to assist with improvements in the business. A new CEO has been appointed at Ceramic Industries and, together with the senior executive team, is driving improvement in that business.
Foxcroft said management in the manufacturing arms had changed. “We have used the opportunity to go back into the business, and back to basics, focusing on quality, costs and volumes.
“We are trying to pull back the poor performance and mitigate against lower demand.”
The group warned that challenging social, political and economic conditions are likely to persist in SA and that market conditions remain “uncertain”. However, it believes the “long-term dynamics of the housing market remain favourable and the board has confidence in the group’s proven business model and experienced teams”.
Italtile was founded in 1969 and its brands include CTM, Italtile Retail, TopT and U-Light.
Group revenue improved 2%, but selling price inflation stood at 6.7% while stock levels rose 2.3%.
Like-for-like retail store turnover decreased 0.3% and trading profit fell 15% to R2.3bn.
The figures reveal that sales volumes in same stores fell by about 7%. The group spent a lot on marketing its tiles and homeware CTM and Italtile brands to try to convince cash-strapped consumers to shop.
The building industry has seen sales fall since the Covid-19 home improvement boom in 2020 and 2021, when consumers spent on their houses as they worked and socialised at home due to the pandemic.
Consumers and businesses have felt the effect of high inflation, interest rate hikes and ongoing load-shedding, while SA’s economy continues to grapple with poor growth and one of the world’s highest unemployment rates.
Foxcroft said the way to grow during tough times was to win market share from competitors.
“We will continue to invest in our stores and people to provide a tremendous shopping experience and [ensure] the right product at the right price at the right time.”
The group is seeing competitors increase imports as shipping rates have stabilised since the record highs they hit during the pandemic, while international manufacturers are dropping their prices due to weak global demand for homeware.
Italtile’s U-Light, which provides lighting for the home, remains unprofitable, with two stores closed during the reporting period.
“Further steps to reduce losses by this business unit are being implemented. The business comprises two company-owned stores, three franchised stores, a web store and a distribution centre.”
The total number of stores across the group grew 2% to 216.
Updated: August 28 2023
This article has been updated with additional information
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