It's been a tumultuous year for listed retailers. By the time Top Companies is published, Edcon will have delisted and gone the private equity route and Shoprite may do likewise, though it's not looking as likely as it did a few months ago. JD Group is set to merge (or be absorbed) by furniture manufacturer Steinhoff and rumours abound about a foreign private equity firm buying another local listed retailer.

Retailers are favoured by private equity firms as they tend to spew out cash, which can be used to pay back the large interest on the debt associated with the buyouts.

Earnings growth also confounded the sceptics. By early 2006, attention was drifting away from retailers and other consumer stocks as most economists believed the run was over and that interest rates would start rising again. But consumers kept spending and SA Reserve Bank governor Tito Mboweni did not raise rates too much.

The food & drug retailers index (FDRI) rose by 32% in 2006, while the general retailers index (GRI) rose by 21%. During the first quarter of 2007, the GRI rose by 16%, helped by the news that Edcon was to be bought out by Bain & Co in a leveraged buyout for R46/share - somewhat higher than the market was expecting. FDRI rose by 9%. The Alsi by comparison rose by 38% in calendar 2006 and by 9% in the first three months of 2007.

As far as ratings are concerned, the FDRI is now trading at a p:e of 20. Though high, it's nowhere near its recent peak of well over 30 set in early 1998. General retailers' p:e is just above 15, up from the previous year's 11 but well short of 22-23 in the late 1990s. The Alsi is rated on a 16 p:e and is getting quite heady in historical terms.

And certain retailers are seeing changes at the top. Ellerines CEO Peter Squires will retire soon and Massmart CEO Mark Lamberti is handing over the reins to Grant Pattison in July, though he will be staying on as nonexecutive chairman.

Pick 'n Pay CEO Sean Summers stepped down at end-February and Nick Badminton took over. Badminton has given notice to the market that his will be a very different style of management.

Pick 'n Pay lost some market share in its financial year to February 2007 but Badminton has presented compelling arguments about how and why it will be able to regain it profitably in the near future.

Woolworths really started coming alive last year and the large food and drug retailers especially sat up and took notice. The roll-out of new food stores was remarkable and the group reckons its share of the food retail market will almost double to around 15% in the next five years. The clothing side is also gaining lost ground.

"We have been bullish on Woolworths in the past 24 months, more so than consensus, but the company has beat even our expectations over the past few months," says stockbroker Merrill Lynch. "The market was initially sceptical on its ability to turn clothing market share losses around, but bought into the best and fastest growing food retail business in SA. Though there has not been a sudden revolution in its clothing business, something is changing.

"So while we are not suggesting there has been a revolution, we are saying that this division is doing far better than before and it is therefore surprising the market. If this performance continues and we add a solid, fast-growing food business to the mix, the investment thesis for a buy is still intact. We believe that Woolworths is quietly doing better and showing healthier growth in all its divisions, from food to clothing to Country Road."

Mr Price, likewise, surprised the market but for different reasons. In recent years it has dominated the homeware market but in 2006 it pulled out all the stops with the launch of its first large format Mr Price Home store on the West Rand. At 6 000 m² it's much larger than anything the competition has and the range is significantly wider than its competitors'.

Having demonstrated its ability to sell consumers fashion clothing cheaply, Mr Price is moving aggressively into furniture and sport as well. Both are high-profit margin areas. And when the group begins selling more lifestyle furniture on credit, it will have another string to its bow.

New Clicks began its long-awaited turnaround last year, under the leadership of new CEO David Kneale.

Truworths continued to defy gravity. "We have been bullish on Truworths' ability to beat the market over the past year, but even we have been continuously surprised by its performance," says Merrill Lynch.

Truworths is undoubtedly the yardstick by which the other clothing retailers are measured. "Can profit margins rise further in financial year 2007?", asks Merrill. "This has been the perennial question on most investors' minds since the day Truworths' earnings before interest & taxation (Ebit) reached 21% and now it is breaching the 30% mark."

The company's response is simple: "As long as we maintain our model and keep sales growth running ahead of cost growth we can continue to raise margins."

Merrill expects full-year profit margins in the financial year 2007 to rise to around 32%. Will they ever reach 35%? "This will be a question of whether management decides to sacrifice margins at these lofty levels for more sales growth," says Merrill. "We think that once Truworths breaches the 35% Ebit level, it implies that it could grow sales and assets significantly more than it does now and that some margin sacrifice is acceptable or even recommended. Either way, we consider it a win-win situation for the company's business model, highlighting the fact that investors get a quality asset when they buy Truworths."

A number of observers, including Merrill, have speculated on the possibility of Truworths being a potential private equity target. Frustrated unsuccessful bidders for Edcon may be among those interested in buying Truworths; time will tell.

Lewis becomes the furniture retailer of choice for investors, with better earnings growth than either of its larger rivals, JD Group and Ellerines. The three groups have different customer profiles. Lewis's target market is the lower end, while JD Group covers the entire market better than any other furniture retailer. Ellerines used to be firmly focused on the lower end but in recent years has covered the top end with its Wetherlys acquisition and now has the middle ground with its acquisition of the Relyant Group last year. It could be that Lewis's customer profile is the reason for its relative success - its customers are less exposed to the risk of over-indebtedness that comes with increasing affluence.

Cashbuild had a hiccup in the middle of last year when earnings growth was considerably dampened by the impact of a greatly increased cost base. The increased costs - in the form of free delivery, longer opening hours and so on - were necessary in the competitive DIY segment of the market. But true to form, the company has bounced back strongly and is firmly back on the path to robust, sustainable earnings growth. Other DIY retailers like Italtile are also still doing well.