Cashbuild expects to report a fall in profit of as much as 30% for the year to end-June, citing impairments on several of its stores at end-2023.
The building materials retailer said in a trading statement on Thursday that it expected headline earnings per share of 977.2c-855.1c for its latest financial year, a drop of at least 20% from the previous year.
The group said: “Impairments of the remaining P&L Hardware goodwill and trademark reported in the first half”, were the key driver behind its expected loss, “as well as other store impairments based on the future outlook within the current constrained economic environment”.
In the second half of 2023, Cashbuild impaired P&L Hardware by R137m, delivering a blow to the group’s interim profit. Headline earnings fell 20% for the six months, as the impairment drove operating profit 81% lower than the previous comparable period.
In its interim results in February, Cashbuild ascribed the impairment to “the lower performance of [P&L Hardware] due to challenging economic conditions and delayed results from management’s actions plans within the business”.
This followed a R156m impairment in the previous financial year, in anticipation of reduced future sales for the lower-end hardware store. Cashbuild said the challenging economic environment and high interest rates had affected the unit.
Cashbuild’s 20%-30% expected profit drop, indicative of diminished demand for its retail products, partly reflects the mounting economic pressures that its mostly low- to middle-income customers faced over the past year.
Electricity tariffs
Throughout the reporting period, the SA Reserve Bank held the repo rate at 8.25% — its highest level since 2009 — with the most recent rate hike in May 2023 after an aggressive hiking cycle to stem rampant inflation in the aftermath of the Covid-19 lockdowns. The persistently high rate has added to pressure on consumers.
Inflation, energy and fuel costs have also played their part on reduced demand, with average consumer purchasing power falling 44% over the past eight years, according to Debtbusters’ latest debt index. Over this period, SA electricity tariffs have increased 2.35 times and petrol prices doubled, while inflation had a compounded effect of 46%.
With the Bank expected to cut rates in September, there is hope for restored demand in the market, with positive implications for retailers, including Cashbuild.
The two-pot retirement system, beginning on September 1, is also expected to boost the retail sector as many citizens will cash in the newly accessible portion of their retirement savings. The potential gains for retailers may begin to reflect late this year and into 2025.
Despite the gloomy outlook for Cashbuild’s upcoming results, the group continues to invest heavily in expanding its network of stores. Furthermore, it experienced moderate improvement in the fourth quarter, with revenue up 4% from previously. Of this, 3% came from its 310 existing stores, while the remainder came from 12 new stores opened over the past year.
Cashbuild is set to release its final results on September 4.
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