Truworths to close up to 15 loss-making UK Office shoe stores

Pedestrians walk past a branch of South African clothing retailer Truworths, in central Cape Town, February 18, 2016. REUTERS/Mike Hutchings

South Africa’s Truworths International Ltd will close up to 15 of its loss-making Office stores in the UK, its CEO said on Friday, with an overhaul of the remainder of the shoe retailer expected to boost sales and profits.

Office is battling tough conditions in Britain due to uncertainty over Brexit and muted consumer sentiment, combined with pressures on store-based retailers as shoppers move online.

The South African-listed clothing, shoes, jewellery and homeware retailer said on Thursday it was critically evaluating the real estate portfolio of Office with a view to closing loss-making stores as leases come to an end.

A day after the retailer released its full-year results, Chief Executive Michael Mark told analysts the group expects to close up to 15 of its roughly 139 stores in the next two years, with possibly more to follow, and also close three concessions that were “problematic”.

He added that the company would continue to focus on inventory management, to arrest a decline in gross profit margins, and expanding and growing e-commerce.

The Office acquisition in December 2015 was Truworths’ first foray into Europe as the retailer looked to diversify from its home market, which has been flooded by the entry of foreign retailers such as Australia’s Cotton On and Inditex’s Zara.

But “just about everything happening in Britain today seemed implausible just a few years ago,” Mark said, quoting John Rapley, a political economist at the University of Cambridge in a recent Sunday Times article.

“We got our timing unfortunately very wrong,” he said, adding that the acquisition had proved a poor investment so far.

In the year ended June 30, Office swung to an operating loss of 94.7 million pounds ($115.11 million), hurt by an impairment charge of 97 million pounds, results released after the market close on Thursday showed. Online sales rose 10 per cent but retail sales inched up just 1 per cent to 279 million pounds.

Truworth’s annual group profit before tax tumbled 57.5 per cent.

Its shares hit a nine-year low on Friday and closed 7.48 per cent lower at 53.57 rand.