Truworths (TRU) – A good day in Office

TRU managed to deliver respectable results for 1H24 despite the weak growth in its core Truworths Africa business. This demonstrates its successful diversification, with Office now accounting for 27% of group trading profit.

Although Truworths Africa recorded a contraction in topline growth, the expansion of GPM shows that the experienced management team did not ramp up promotional activities to stimulate topline growth. We think its operating margins could rebound once credit extension normalises.

We believe consumers’ financial conditions may be improving, and note the positive trends in NCR data, which reveal that the proportion of credit customers in good standing improved over the past year. The implementation of the Two-Pot retirement system in September 2024 could further boost consumer confidence and improve credit conditions, in our view.

Although Office’s topline growth is normalising to low-single digits, the rationalisation of its store footprint has reset the business on a leaner and more profitable base. The space reduction is now complete and management plans to grow space by 12% this year, which could support turnover growth. Our benchmarking against competitor Schuh shows that while Schuh pursued a market share strategy, Office’s store optimisation strategy delivered better profitability.

TRU is in a strong financial position with low net debt and its capex intensity will reduce substantially in FY25 when the distribution centre is completed.