Cashbuild trading update

This morning we received a third quarter sales update from Cashbuild which came in line with what we have been seeing for the past six months, flat sales.


"Revenue for the company was up by 1% on the third quarter of the prior financial year. Stores opened since 1 July 2011 (new stores - 9 stores) contributed 2% of the increase, whilst existing stores (187 stores) decreased with 1%. This, together with the growth reported in the first half, equates to an increase in revenue year to date of 2%.


Transactions through the tills during the third quarter decreased by 2% compared to the third quarter of the prior financial year. New stores contributed an increase of 3% while existing stores decreased by 5%. Total units sold for the third quarter remained at similar levels to the prior year with existing stores decreasing by 2%."


This is pretty much in line with what we saw in the first half which saw same store sales down 2%. I guess where the biggest concern comes from and why the share price is down 2% today was the following line. "Gross profit percentage margins have decreased from levels reported at the half year." That means we are probably going to see a decline in earnings for the full year. I definitely feel that this is comfortably factored into the share price, let's look at the macro picture which is hurting Cashbuild so much.


Firstly the crimping margins would be a direct result of the weaker Rand. More expensive transport costs and imports have forced Cashbuild to keep prices below inflation to remain competitive amongst a weak consumer.

The second issue and I have spoken about this extensively before relates to the current political situation we find ourselves in. The strikes deteriorated foreign confidence in this country. That weakened the rand extensively which in turn made most goods more expensive. If you are earning a small salary these price increases make a huge difference. Cashbuild are very badly diversified amongst the income groups. Their locations mean that they are fully geared to lower income households.


When you look at the dynamics of this country you can see that the majority are struggling and will be very unhappy with the current environment. The powers that be will have to change this especially when voting season approaches. This leads me to believe that Cashbuild will be fine over the long run. Because their best interests are in line with the ruling parties electorate. Whether it be by grants, wage increases or more state jobs.


South Africa has certainly hit a rough patch in terms of economic development. But we have hit speed bumps many times before. We have a big population with millions of people waiting to be liberated by education and wealth. And we have millions of talented and motivated people who will carry us through, despite policy. Sorry for the patriotic/political rant.