High cost of credit weighs down Truworths Q1 sales

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Truworths ladies
Truworths ladies
HARARE – Listed clothing manufacturer, Truworths Limited units sales for the first quarter (Q1) to October drastically fell following the suspension of credit sales in local currency in response to the RBZ interest rate hike in July this year.
The Central Bank raised the Bank policy rate to 200% from 80% as part of efforts to curb rising inflation which was mainly feeding on excessive money supply on the market with currency speculators borrowing to purchase the US Dollar on the parallel market.
In it’s Q1 trading update Truworths said unit sales were down 55.1% compared to same period prior year as a result of the suspension of credit sales. The group saw it prudent not to extend the financial risks of the high cost of credit to it’s customers and limited all sales in local currency to cash basis as government continued to pursue a tight monetary policy
Given the low disposable incomes in the economy, the group suspension of credit sales had a negative bearing on sales which it also attributed to the “severe shortage of ZWL as a result of tight monetary policy,” and unfair competition in the sector dominated by smuggled cheap second hand clothes.
The clothing firm has been receiving a substantial share of it’s earnings on credit. In Q1 of the previous financial year, credit sales constituted 42% of total sales while 52% were in cash.
“Sales and profitability continue to be adversely affected by the restrictive pricing laws, which negatively  affect competitiveness against the unregulated sectors,” said Truworths CEO Bhekithemba Ndebele.
“In addition to US dollar cash sales, the business is selling in US dollars on a lay bye basis US Dollar credits considered on a selective basis where there is assurance that the US dollar earnings are GUARANTEED and not an ALLOWANCE.”
There is however scope for the group management to reconsider its suspension of the ZWL credit sales to boost it’s sales going forward. This could follow Edgar’s Limited another clothing firm in the market which continued selling on credit after considering weak consumer power. The group’ flagship brand Edgar’s credit sales constituted 45.6% of it’s total sales during the same period against nill for Truworths.
Borrowings in local currency for the period  amounted to $56,35 million at a cost of 205% per annum. There  were no USD borrowings as at 9 October 2022 and there were no USD debtors.
The audit for the year ended 10 July 2022, which was targeted for  completion in November 2022, is still in progress. The company has since applied for and was granted a further extension by the ZSE to publish the annual audited results by 15 January
2023.

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