TRU delivered solid results for FY23, with diluted HEPS growth of 11.8% y-y and sales growth of 13.2% y-y. Truworths Africa’s credit business supported topline growth in a challenging market and we assess what impact the high churn in the credit accounts on its book may have on the risk of bad debt. We analyse the movements in its ECL provision and note that actual defaults are typically around 70% of opening provisions. This means a rise in the ECL provision to 21.0% or 22.0% could result in bad debts charged to the income statement rising by 12.9% y-y and 20.3% y-y, respectively.
Office’s strong sales growth contrasts with that of TFG London, and we note a surge in Office’s average store sales in FY23, which we think may be due to the curtailed store footprint forcing loyal customers to transfer to the remaining outlets. With management planning to increase the footprint by 10% in FY24, we think that the new store openings could result in some of those customers who migrated to the remaining stores transferring to other locations that spring up. This could result in lower trading densities, and dilute operating margins, in our view.