Truworths downplays value retail pilot of new Primark stores

Fashion retailer Truworths International’s CEO Michael Mark says the group’s newly established value brand Primark is still in its experimental stages and is yet to make an impact on the group.

He was commenting on the group’s foray into the booming value or budget retail segment during Truworths’s financial results webcast on Friday.

The move to launch Primark stores seems to be aimed at gaining a slice of this segment of the market, which is dominated by the likes of JSE-listed peers Pepkor and Mr Price, while TFG has also made a move with its purchase of the Jet chain last year.

Mark’s comments came just a day after the Competition Commission said in a statement on Thursday that Truworths had not contravened the Competition Act by naming their new value retail play Primark, which is the same as international retailer brand PRIMARK of Primark Holdings.

The trademark battle between UK-based PRIMARK and Truworths ensued in 2018 after Truworths successfully removed Primark Holdings’ mark from the trademarks register in South Africa, arguing “lack of use”.

In 2019 Truworths proceeded to establish a value brand using this mark and has since been entangled in a legal battle with the UK company.

Mark brushed off questions on whether the UK company, which is 20 times bigger than Truworths will appeal the competition authority’s decision.

“I’m not going to go into the legal side of that, that is a legal process. We love the PRIMARK business … We think our South African Primark is a great brand and we think it’s got lot of opportunity in the future,” he said.

“These [Truworths Primark stores] are small, they are only a 100m² each or something, so they can’t be viewed [as] massive sales because we are experimenting, and we are trialling,” Mark explained.

“We are happy with them, they look good, they are paying [off] well but it’s a trial.

“It’s a work in progress, so it’s not going to make an enormous difference in the short-term. It will over time,” added Mark.

Meanwhile, despite the legal contestation taking up some of management’s time amid the reduced consumer spending habits and difficult trading conditions as a result of Covid-19, Truworths has shown noteworthy resilience in its financial performance.

The group, which released its financial results for the 52 weeks ended June 27 after markets closed on Thursday, reported a rise in profit with headline earnings per share (Heps) increasing by 26.8% to 520.3 cents from 410.4 cents in the prior period.

The company posted an spike in trading profit of 75.1% to R2.3 billion.

Truworths also saw sales growth of 5.5% for its Africa segment – made up largely of its South African operations – to R13 billion.

Account sales and cash sales increased by 2.8% and 11.8% respectively, with account sales making up 68% of retail sales.

Truworths’s UK-based Office retail chain however continued to underperform due to prolonged store closures and the reduction of store footprint.

“Retail sales for the group’s UK-based Office segment decreased in [pound] sterling terms by 17.4% to £192.4 million relative to the prior period’s £232.8 million, as a consequence of the prolonged store closures and a reduction in the store footprint. In rand terms, retail sales for Office decreased by 13.1% to R4 billion,” the company noted in its results statement.

However, online sales have done an important job in keeping the UK segment abreast as the segment’s strong online presence has helped rake in 18.2% more sales in this period, contributing 63% of the segment’s retail sales for the current period.

Truworths declared a final cash dividend of 118 cents per share, but the market did not react positively, with the group’s share price down some 12% on Friday, closing at R55.50.

Truworths share price

By Akhona Matshoba

This article first appeared on Moneyweb and was republished with permission. Read the original article here.