While TRU delivered satisfactory results for FY21, the key driver for the return to profit was its low expense growth, aided by a release of doubtful debts provisions in Truworths and the impairment in the prior year base in Office.
The disruption caused by the Covid-19 pandemic makes it difficult to assess the topline performance of the clothing retailers, but a comparison of market shares before and after the pandemic shows the extent these retailers maintained their market share relative to their competitors. We find that TRU, TFG and WHL may have lost relative market share while the value retailers gained share.
We think TRU’s development of more standalone chains is a departure from its traditional large-format emporium stores, which could increase its expense to sales ratio.
An analysis of TRU’s debtors book shows a rising proportion of new accounts which could increase bad debt risk, in our view. Also, while the strong demand for credit among younger customers is encouraging, high youth unemployment could limit this opportunity.