Tough out there, but making headway

On Monday we received a trading update from Cashbuild. Sorry it's late, it has been a busy week in terms of company news. This update is for the second quarter of the year ending December 2013 but figures for the half year are also given.


"Revenue for the company was up by 4% on the second quarter of the prior financial year. Stores opened since 1 July 2012 (new stores - 16 stores) contributed 4% of the increase, whilst existing stores (191 stores) remained at similar levels to the prior year. This, together with the growth reported in the first quarter, equates to an increase in revenue for the half year of 7%.


Transactions through the tills during the 2nd quarter increased by 1% to that of the comparative period (half year: 2%). New stores increased with 5% and existing stores decreased with 4%. Total units sold increased by 3% with existing stores decreasing by 1% for the 2nd quarter. Half year units sold increased by 8% on prior half year, with existing stores increasing by 4%."


It sounds a bit complicated with the shifts between the second quarter and the half year. Basically sales have increases 4% for the quarter and 7% for the 6 months thanks mostly to new stores being opened. Selling inflation increased 4% which explains why volumes were close to flat.


How do we interpret this? Historically Cashbuild have been fairly conservative with their expansion plans. I find it very encouraging that they have ramped this up by adding 16 stores since July 2012 (an increase of 8.3%), 7 of those coming in the last 6 months. It means that they are confident that there are still underpenetrated areas they can enter without stealing market share from existing stores. As you can see from these sales numbers, the demand is there for these new stores while existing sales remain flat.


As with many other retailers the weaker rand has been a big issue. It creates more expensive imports for an already weak consumer. Not only does Cashbuild fall under the discretionary spend category but they also target discretionary spend of the lower end consumer, the worst hit segment from inflation. That is why I am impressed by these numbers. Even if they rely on unsecured lending from other companies, they don't absorb the risks of defaults. Unsecured lending in SA has hit a huge dip and even if it hasn't bottomed yet, it is close.


Cashbuild is facing tough economic conditions, for me this is a great time to be buying because when they come through this (which they are and will) they will be well poised to fly when the consumer gets another kick.