Holdsport trading update dresses the stock up

12-FEB-13

It has been a tough start to the year for the retailers as the majority of their updates have not shown the growth that their share prices expect. That caused the index to drop nearly 16% as everyone started panicking about a credit bubble, strikes, inflation and a strong Rand. Yes these are factors one needs to consider but we have always been of the view that the selloff in the sector was an overreaction.


This has proven to be the case (so far) as the sector has improved 9%, now only down 5.6%. The market can definitely be volatile, especially when a sector hits the lime light. One of our preferred entrants into the sector came out with a good looking trading update yesterday, especially when you compare it to its direct competitors. I am talking about Holdsport here.


"Holdsport shareholders are advised that total sales for the five months ended 31 January 2013 ("the period") increased by 11.2% compared to the corresponding period last year. Retail sales increased by 11.5% with sales for comparable stores increasing by 8.6% over the period.


Total (and comparable) sales growths for each division for the five-month period, were as follows:

- Sportsmans Warehouse sales increased by 12.9% (10.4% comparable);

- Outdoor Warehouse sales increased by 7.4% (3.6% comparable);

- Performance Brands recorded external sales growth of 1.5%.


Retail trading space increased by 5.4% relative to the prior corresponding period and the retail divisions experienced price inflation of approximately 3.6% for the period."


Like I said above, these are good numbers and the market thought so too, pushing the stock up 3.5%. When you have a look at the trading statement the company released during the exact same period last year it looks very similar. Overall sales increased 11.5%, 12.3% from Sportsmans, 6.6% from Outdoor and 42.8% from the wholesale division. Evidently the sales from the Performance Brands division has slowed from a much higher base than last year.


On the back of this growth the company reported earnings of 387C in May last year. It's a difficult one to analyze though because in the first 6 months of this financial year they only reported 157c which was hampered by currency movements. Expectations are for about 400c but again the weakening Rand will certainly hamper margins as much of their products are imported.


However, and I have said this before, the share price, as you would expect has already factored in the movements of the rand. Trading at R44 or 11 times this year's earnings the stock sure does look cheap if it is poised to grow sales at this rate. And of course we believe they can. Sport is aspirational and a way of life in South Africa no matter what income bracket you fall in. A healthy lifestyle is becoming the norm. There is room for new stores and existing sales will continue to grow. We are happy to carry on adding to this stock.