Our opinion on the current state of TRUWTHS(TRU)Truworths (TRU) is a clothing, footwear, and accessories retailer operating in Southern Africa and the UK. It is listed on both the JSE and the Namibian Stock Exchange. The company generates 70% of its South African sales on credit, making effective credit management a critical factor in its profitability.
Truworths operates in a highly competitive retail environment, contending with local players such as Woolworths, Checkers, Pick 'n Pay, Foschini Group, Mr. Price, Ackermans, and Pep, while also facing increasing pressure from international brands like Cotton On. The industry is heavily reliant on consumer confidence and spending, making it highly sensitive to economic conditions. Additionally, Truworths must continuously adapt to the fast-changing fashion landscape to maintain its appeal to consumers.
The company maintains a conservative approach, constantly refining its business model. It operates 767 stores in South Africa, 37 stores across the rest of Africa, and 132 stores in the UK, Germany, and Ireland. Truworths has also acquired Barrie Cline Ladieswear, a long-time supplier, and is launching a new low-cost value chain called "Primark" to compete with Mr. Price and Jet. It plans to roll out 15 to 20 new value stores in the coming months.
On 9th November 2023, Truworths reported that retail sales for the first 17 weeks to 29th October 2023 were up 10.9%, while online sales grew by 41%, now accounting for 4.7% of total sales. The company also noted strong UK-based Office sales, which increased by 18.9% in GBP terms and 38.8% in Rand terms.
For the six months to December 2023, Business Day reported an 8% increase in sales. However, in a trading statement for the 52 weeks to 30th June 2024, Truworths estimated HEPS would decline by 5% to 9%, while retail sales increased by 3.6%. The company attributed the decline in earnings to a reversal of previously recognized impairment losses on the Office trademarks, an indirect tax settlement in the prior period, and other once-off factors.
In an update for the 18 weeks to 3rd November 2024, the company reported a 2.8% increase in sales, with credit sales making up 46% of total revenue. While business and consumer sentiment in South Africa had improved following the formation of a government of national unity earlier in 2024, Truworths noted that this optimism had not yet translated into meaningful improvements in disposable incomes.
In a trading statement for the 26 weeks to 29th December 2024, the company estimated that HEPS would decline by 4% to 8%, while sales increased by 2.4%.
Technically, the share price declined significantly during COVID-19. We previously advised waiting for a break above its downward trendline, which occurred on 4th September 2020 at a price of 3,195c. The stock then reached a high of 11,212c on 4th November 2024 before entering a new downward trend.
Current advice: Truworths remains a solid retailer but is facing macroeconomic pressures, including constrained consumer spending. As the stock is now in a new downward trend, we recommend waiting for a clear break above the trendline before considering any new investment.
