Key message: Difficult trading environment affects revenue and lowers margins from post-Covid DIY/building market boom period. Some green shoots appearing though in construction materials market.
- Cashbuild recently released FY23 results. HEPS declined 39% to 1222c on a 4% and 56% decline in revenue and operating profit respectively. Gross margins declined marginally to 25.4% (from 26.3%), in line with pre-Covid levels.
- Revenue declined by 4% year-on year with Cashbuild SA stores down 4% and P&L Hardware down 10%. Revenue for stores in existence prior to July 2021 (pre-existing stores – 308 stores) declined by 6%, while the 10 new stores post July 2021 contributed 2% growth.
- Customer transactions declined by 7% in all stores with customer footfall down 20% from the post-Covid boom levels. The average basket size has increased by 3% in Q3 and 2% in Q4, with product inflation at 5.4%. Customers remain under pressure with trading conditions expected to remain challenging.
- Operating margins fell to 2.2% (from 7.9%) as market conditions were weak and P&L was impaired by R170m. Excluding the impairment margins fell to approx. 3.8%. Management had been guiding margins down after the post-Covid DIY boom, but the extent of the fall was bigger than expected.
- Cement sales – a key indicator of demand for Cashbuild – were down 11% for the year and down 5% for the first six weeks of FY24. Volumes in 2H across the board were down (timber -15% in Q3 and -6% in Q4, bricks -4% in Q3 and -2% in Q4, roof coverings -13% in Q3 and -7% in Q4%, openings -13% in Q3 and -3% in Q4%, decorative -6% in Q3 and 5% in Q4%). Only decorative is showing growth so far in FY24.
- Increased competition from independent stores with a consequent increase in cheaper inferior products has put pressure on prices and volumes. Cashbuild does not have a high cost base and cost reduction is difficult without reducing employee costs (a cut in employees per store is planned should weak conditions persist). Smaller stores have also been allowed to reduce costs.
- While FY24 started with most product categories down, there has been a recent recovery in construction materials demand and we expect a recovery to start in 2H FY24.