| Tue 2 Nov 2004, 12:24 | | Spenders likely to jack up Foschini results |
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Spenders likely to jack up Foschini results
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Earnings could be up by 35%-45%
Consumer Industries Editor
CLOTHING retail chain Foschini will continue to reflect the impetus of strong consumer spending when it reports its interim results on Thursday.
Better yet, analysts expect that the chain will continue to grow profits well into next year.
Foschini said at the end of September that the company` s earnings for the 26 weeks ending September 25 would be 35%-45% better than the same period a year ago.
Foshini chairman Eliot Osrin said at the annual meeting at the beginning of September that total sales for the first five months of the year were above budget and 19,7% higher than they were last year.
Like-for-like sales were up 15,8%. The period will not include a contribution from its new chain, DueSouth, which was only launched last month.
In the six months to September last year, Foschini`s headline earnings were 95,1c a share. If growth in the sixmonth period was about 40%, interim headline earnings would be about 133c a share, the group said.
For the full 2005 financial year, headline earnings could grow even faster as a strong Christmas trading period is envisaged for all retailers.
The Foschini group is expected to experience, in its second half, the effects of introducing DueSouth, expanding @home and renovating its Markhams chain.
Meanwhile, Edcon, its rival, is also due to release interim results this week. Edcon said its first quarter to July 3 had seen total sales up 25% on last year`s. Its headline earnings a share for the six months to September were expected to be 60%-80% above last year`s, but the group said the figure would be boosted by about 20 percentage points because of the inclusion of an extra week.
Edcon will be reporting for the period to October 2. Analysts, who asked not to be named, said that retail sales were expected to continue to surge in the next few months, while economists cannot agree on when interest rates will be increased again.
A rates hike could put a brake on spending. But some economists believe that the economy has entered an extended period of relatively low interest rates.
As consumers are left with higher disposable income, they are likely to `buy up` to more expensive items, and may take on more debt, economists say.
Analysts said they would be watching the performance of the mainly cash-based retailers, such as Mr Price, compared with the retail chains such as Edcon, which derive a greater proportion of sales from credit. In the next few months, credit retailers such as Edcon and Foschini are likely to outperform cash retailers.
Analysts said there was little danger that Foschini would overextend credit to its customers, and felt that its policy could even be regarded as too conservative.
At the end of its previous financial year, Foschini reported that net bad debts in Retail Credit Solutions, its credit-granting division, had fallen to 2,9% of credit transactions, from 3,1% previously.
Foschini`s shares have risen 220% from about 950c in mid-2002 to more than R30 at present. In the same period the general retailers` index has risen by about 150%.
The market rating of the shares, as reflected in its price:earnings ratio, is above Mr Price but below Edcon, which an analyst said was mainly because of Edcon`s better disclosure and the relative size and diversity of its operations.
Foschini closed 1,15% down at R30,16 yesterday. Edcon`s share price rose R1 to R215.
