- Woolworths and Mr. Price have released sales updates Thursday morning, which has generated large losses in the retail sector.
- Price's share price dropped 15% after being "priced for perfection," according to an analyst.
- Woolworths declined by almost 10% as a result of lower sales of non-food products.
- But in a stunning storyline, the Foschini Group launched a late afternoon late – and its share rate reversed a 7% loss to move up.
Sales disappointment at Woolworths and Mr Price triggered a jester's blood bath in the JSE retail sector Thursday morning until the Foschini group saw a stunning change in its fortunes throughout the day. (See "Then Foschini saves the day" below.)
Mister. Price has lost more than 15% of its value after its last sales figures for the three months to the end of December:
Source: Mr. Price. (* Includes the VAT increase in South Africa from 14% to 15% in April 2018)
And more than five billion dollars of the Woolworths market capitalization was eliminated in a few minutes as investors digested their upgrades: sales of fashion, beauty and household goods fell by 2% in the six months, while food sales increased by 6.3% to the 9% increase it reported a year earlier.
The Woolworths share price was the last at R49.75 – down nearly 10% by Thursday afternoon. Its shares have now lost more than a quarter of its value since last year's highs.
Other retailers were pulled down: Truworths fell by more than 9% to R80.71, and clicks lost 4% to R192.26.
The strong retail sales in November, released by South African statistics this week, reopened the hope that South Africans are spending again. But the sales figures of Woolworth and Price have crushed these dreams: it is clear that households are still in massive pressure.
Higher interest rates and rates, as well as recession economics, have had an effect – and the record gas price has only begun to decline at the end of November, says Ron Klipin, senior analyst at Cratos Capital.
A continuing trend towards online shopping has also contributed to the emergence of Woolworth strains, says research analyst Gryphon and portfolio manager Casparus Treurnicht.
In addition, Woolworths has always had a buying problem, says Bright Khumalo's Vestact. Their summer and winter stock time has been in the past, and have missed on key fashion trends. Woolworth's CEO Ian Moir last year admitted to Moneyweb that the group "she was too young and fashionable with our woman".
Meanwhile, Mr. Price – who has traditionally been very resistant to difficult times – is fighting the international chains H & M and Cotton On, says Klipin. Also, its poorer customers have opted for cheaper garment options at Pep and Ackermans.
But its trading update showed a bright spot: sports goods, with sales up to 12.7%.
Jean Pierre Verster, portfolio manager at Fairtree Capital, believes that this is largely due to the demand for "athleisure" – a gymnasium and sport that is also worn for leisure or work. This is true for the Foschini Group (TFG), which could benefit from exposure to this trend through its Sportscene and Totalsports stores.
Then Foschini saves the day
The TFG Transaction Analysis was launched late Thursday afternoon – and the share price, down 7% at a time, triggered an amazing change to trade by more than 2% higher.
Foschini clothing sales on the local market and on the rest of the continent rose by more than 12%, 8% for homeware and 4% for jewelery. Total turnover for the nine months to end December 2018 increased by 22.7% – due to the strong performance of UK and Australian operations.
Other prospects of retailers
Retail sales data released this week showed that sales of furniture and appliances increased by over 13% in November, partly offset by sales of Black Friday and Cyber Monday. This could provide support for Shoprite (owning house and home and OK furniture), Pep (HiFi Corporation and Incredible Connection), Massmart (Makro, Dion Wired and Game) and even the Lewis Group, says Verster.
Despite large Thursday's downsides, however, Business Insider SA investors spoke to see a low value in the retail sector.
"Share prices are still cost-free," says Treurnicht. Verster does not buy as well.
Earnings, which are traded at 33 times earnings, could be particularly vulnerable if its earnings are disappointing, says Treurnicht.
Price of Price's action is priced for perfection, says Khumalo. As a long-term investment, he thinks Woolworths could be considered because he thinks he would be one of the first to benefit from a long awaited upswing. "Woolworths could, however, convert more loyal food customers to buy their clothes – if they can offer them the right to offer."
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