Changing consumer priorities knock Cashbuild’s half-year revenue

JSE-listed hardware retailer Cashbuild reported a double-digit decline in both revenue and operating profit for the six months ended December 2021 on Wednesday.

Group revenue slumped 12% to R5.9 billion (2020: R6.7 billion) and operating profit plunged 14% to R492 million (2020: R576 million).

Cashbuild’s interims were affected by the shift in spending priorities as a substantial portion of South Africa’s workforce has returned to offices and is spending more on leisure and entertainment as Covid-19 restrictions have eased. The spending boom on home improvements and refurbishing home offices in the wake of the pandemic seems to be coming to an end.

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Cashbuild reported headline earnings per share of 1 130.4 cents for the half-year, a 27% plunge from the prior period with basic earnings per share similarly declining 19% to 1 295 cents (2020: 1 595 cents).

Impact of July unrest

The hardware retailer also highlighted the July unrest in KwaZulu-Natal and parts of Gauteng as a major contributing factor to the weaker financial performance, with 36 of its stores (32 Cashbuild and 4 P&L Hardware) being looted or damaged.

Nevertheless, when the affected stores are not factored into the interim results, the group’s revenue still fell 5% to R5.7 billion (2020: R5.9 billion) and its operating profit decreased 7% to R465 million (2020: R497 million).

Cashbuild says the looting led to the scrapping of various categories of property, plant and equipment which cost the group R20.4 million and inventory losses of R136 million.

The group submitted insurance claims of R143 million for inventory, R71 million for property, plant and equipment, and R65 million for business interruption to its respective insurers.

It received interim payments of R132 million for its asset and stock claims on November 23, 2021 and received R82 million after the end of the half-year.

Cashbuild says it expects compensation for business interruption to be finalised after its full-year results have been determined.

Analyst reaction

Sasfin Wealth senior equity analyst Alec Abraham tells Moneyweb that although Cashbuild’s results were heavily impacted by the July riots and looting, the group’s performance is still a testament to management’s capabilities.

“They did get a payout from insurance which helped, but it’s a real testament that they managed largely to hold margins despite the much lower revenue. From that point of view, it was a good performance,” he says.

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“The one concern I have is that when you look beyond the 2020 pandemic period and look at the compound growth over a five- or eight-year period [pre-pandemic], you will see that the revenue has fallen back behind that of hardware retail sales.

“What [this] speaks to very clearly is the fact that Cashbuild is exposed to the lower income groups and the rural areas as opposed to metropolitan areas,” says Abraham.

“Those two [demographics] have been decimated as economic growth over the last five [to] eight years has deteriorated.”

Abraham notes that while the looting impeded the group’s progress, its overall performance was also affected by job losses and the significant declines in income. He says the fact that Cashbuild has a bias towards lower income groups means the results are not necessarily about going back to work but the return of employment figures to a meaningful extent.

“The lower income [group] lose their jobs more regularly and you see that impact on the relative performance of Cashbuild’s sales trend in recent years compared to the hardware segment of the overall SA market.”

Cashbuild is still seeking to boost business – it opened two new stores, revamped five, and relocated one Cashbuild store during the interim period.

“Three looted Cashbuild stores and one P&L Hardware store were closed at the expiration of their lease agreements, while 25 Cashbuild stores and three P&L Hardware stores that were looted have since been reopened,” it says in a statement.

“Management expects trading conditions to remain challenging due to the ongoing long-term effect of Covid-19 and the high unemployment rate,” says Cashbuild CEO Werner de Jager.

“Inflation is expected to remain at high levels, impacting the affordability of products and placing pressure on sales growth,” he adds.

Cashbuild declared an interim dividend of 587 cents, down 19% from 724 cents for the comparative interim period.

 Palesa Mofokeng is a Moneyweb intern.