TRUWORTHS expects a 67 % turnover growth to US$22 million this year, as prices of clothes are anticipated to rise driven by firming international prices of cotton lint, CEO Themba Ndebele has said.
This should see a sustained earnings growth, should the clothing manufacturer price its products correctly.
“The question will be will you increase prices and compromise volumes or the opposite,” said Ndebele at an analysts’ briefing this week. In the six months to December, Truworths recorded sales of $13,38 million, up from $5,8 million in the corresponding period in 2009. At $7,1 million, gross profits were up 53,1%.
The Truworths CEO said the projected gross sales figure for this year could be much higher depending on whether civil servants salaries moved upwards.
“If there is a movement on civil servant salaries we will surpass that target. The rate of food inflation is also a determining factor,” he said.
Civil servants account for about 44% of the group’s account holders. Ndebele said the objective going forward was to make installments more affordable. The rate of default had fallen.
He said doubtful debt as a percentage of trade receivables had eased to 2,4% compared with 5,1% at year end. The cash to credit ratio had fallen to 21:79 from 33:67 at the June year end.
The group had almost made 100% provision on all outstanding balances, with net bad debt (as a percentage of credit sales) at 1,3% compared with 0,9% previously.
Ndebele said by way of comparison net bad debt in South Africa was 4,1% for Truworths 4,5% for Foschini.
Ndebele expected clothes prices to rise during the second half of the year.
Cotton lint prices, as per the Cotlook A Index (International Cotton Industry weekly newsletter), surged from 78c per pound last year to US$1,40 per pound for the current year.
“Manufacturers are not quoting prices at the moment because of the (cotton) price movements. We are going to meet with our key suppliers next week on the way forward,” Ndebele said.
World cotton mill use started to recover in 2009/10 due to the improved global economic environment. However, high cotton prices and shortages of supply are expected to limit the mill use expansion during 2010/11 to about 25 million tonnes, almost unchanged from 2009/10.
“During the second half of the year we will see clothes inflation. Those in the retail sector will have to manage price increase and volumes in they are to survive,” he said.
No growth in mill use is projected for major consuming countries, except for India, where mill use may grow by 8% to 4,6 million tonnes.