HomeBusiness DigestEconomic decline hits Truworths hard

Economic decline hits Truworths hard

Clothing manufacturer and retailer Truworths expects an extremely difficult trading business environment owing to foreign currency shortages that have negatively impacted on its stocking levels and pricing.

By Fidelity Mhlanga

In a statement attached to the company’s financial results, the firm’s chairman Christopher Peech said the clothing retailer would move to reduce trading space in line with densities.

“Trading conditions are expected to remain extremely difficult and our business will have to reduce trading space in line with the trading densities. The shortage of foreign currency will negatively impact product availability and pricing. With the decline in aggregate demand, gross margins will remain under pressure,” Peech said .

The company continues to languish in the red as it reported a US$$989 800 loss in half year to January 2017 from a US$1 million loss in July 2016. The gross profit margin decreased in the first half to 38,1% from 46,3% in 2016, as product was discounted to stimulate sales in a market, witnessing generally low aggregate demand.

The company’s trading expenses, excluding trade receivable costs, decreased by 17,2% and an operating loss margin of -20,2% from 4% was achieved for the period. The firm had a number of active accounts increased by 0,1% over the comparative period to 86,356.

Trade receivables reduced by 2,7%, mainly as a result of reduced sales on credit.

A 36,8% increase in the number of accounts opting for 12 months credit reduced the impact of the decline. The net bad debt experience was worse than the prior year, with write-offs increasing by 225,6% and recoveries reducing by 58,6%.

Truworths said all write-offs had been adequately provided for.

The doubtful debt allowance, as a percentage of gross trade receivables, increased to 8% up from 6,3% in 2016. The company could not declare a dividend, citing the difficulties in the trading environment.

Consumers in Zimbabwe have been turning to second-hand clothing due to a lack of disposal income.
Finance Minister Patrick Chinamasa’s efforts to ban trade in second-hand clothes in his 2015 mid-year fiscal review hit a snag after the move received brick bats from legislators who objected that it was anti-poor.

In the 2017 budget, Chinamasa said significant progress had been made in the clothing sector, especially on the export of finished articles, adding that imports of clothing items, in particular school uniforms, continue to threaten the existence of small enterprises.

According to the Finance minister, manufacturers of uniforms have, for a number of years, provided income for small enterprises that operate as cooperatives.

With effect from January 1 2017, he proposed that school uniforms be removed from the Open General Import Licence in order to promote local production.

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