There was a lot of movement in the top-five ranking of retailers by net profit last year. Both JD Group and Edcon powered past last year's most profitable retailer, Massmart. Foschini grabbed the number five spot, ousting Metro Cash & Carry, which began the process of delisting last year. Shoprite fell out of the top five, coming in at number six.
JD Group acquired Profurn in 2003 and absorbed it relatively quickly. This acquisition helped consolidate the furniture retailing industry generally and the Ellerine/Relyant merger, which has just been ratified by the competition tribunal, will aid this process.
Coming from an already high earnings base, Edcon still managed to exhibit exceptionally strong earnings and dividend growth, confounding analysts. And even now, just past the end of the 2005 financial year, Edcon is expected to post earnings-per-share growth of about 60%. As yet, the recently acquired CNA has hardly begun to demonstrate its potential.
And what of Massmart, last year's most profitable retailer? CEO Mark Lamberti warned in December last year that earnings growth in the financial year to June 2004 wouldn't be as strong as in the past. This took the market by surprise and the share price lost more than 20% in a couple of days.
Lamberti highlighted the fact that Massmart's profits come from two sources - the buoyant mid- to upper-market consumer and the relatively depressed lower-market consumer. Though the upper end has been thriving as a result of the strong rand, lower interest rates and tax cuts, the lower end of the market has been struggling, as these factors hardly affect it. The Massmart share price has recovered slightly since Lamberti's remarks, but is still a long way off its previous high.
Woolworths Holdings (Woolies) managed to hold on to the number four position in terms of profitability. The group had a reasonable year, though it was apparent from its latest interim results that the clothing side of the business still isn't performing to expectations. Remedial action has been taken, notably by giving head of product Richard Butt the task of turning this division around. Butt's background suggests this will work.
