Lower consumer demand hits Italtile’s profit

You can also listen to this podcast on iono.fm here.

FIFI PETERS: Let me give you details on the [year to end June 2023] numbers that came out of Italtile today. The company – a homeware manufacturer and importer – lowered its full-year dividend. The dividend cut was 13%, and this is as profits fell and revenue growth was pretty muted.

Italtile, which also owns CTM and the TopT brand, said its goal at the start of the year was to gain market share and improve profits, but it failed to do so.

We’ve Lance Foxcroft, who is the CEO of Italtile, for more on the numbers. Lance, thanks so much for your time. Often when you set a goal and fail to achieve it, you tend to review why you didn’t meet your initial goal. So when you look at the case of Italtile and what you weren’t able to achieve, what do you think went wrong and what do you think prevented you from growing market share and profits as planned?

LANCE FOXCROFT: You are correct. We did reflect quite a lot on the results, and really we were optimistic to take the market share, but the subdued economy and the reduction in volumes through the business really dragged down the results in the manufacturing as we failed to keep our operations fully loaded.

I think we know the consumer is under pressure and we’ve continued to invest in our business and our people to provide an unrivalled shopping experience. But the increase in volumes was just not there.

We did manage to grow the top line in value, but with price inflation it meant that the real volumes were actually reduced. It talks to the decreasing real wages that we see in South Africa as well as the squeeze on the consumer.

But we know we can execute better, and we’re going to continue to pull the levers that we have to try and improve our shopping experience. We believe there are still opportunities to take market share going forward.

FIFI PETERS: So would you say this time around you lost market share, or you kept your ground?

LANCE FOXCROFT: It’s difficult to get an exact number, but our feeling is that we more or less kept our ground; but the overall market no doubt shrunk a little bit. And we see evidence of that in the results from some other building companies or building-supply companies, as well as our own research.

FIFI PETERS: You did mention just now that you had to increase prices, so the consumer had to pay more for some of the products that they get from you – from the tiles to the bathroom ware and kitchenware and the like. But you did that as a result of your own costs increasing, so just trying to narrow the gap, as it were.

I’d like to find out from you whether the decline in volumes was as a result of consumers pushing back against some of those higher prices, or was it a function of something else?

LANCE FOXCROFT: Yes, we did increase prices, but we didn’t pass the full price increase on to consumers. In fact, we did absorb some of the inflation increases – both at retail and manufacturing – to try and maintain affordability for our customer, which we know is under pressure.

The kind of volumes is more an indication of the strain that the consumers are under, rather than customers switching to other prices.

We do benchmark our prices in the industry, and we believe we still have very competitive pricing.

And with our other advantages and competitive positioning that we have – with our great stores, our excellent service, the wide range and the market-leading quality – really still give customers a good reason to come to our stores.

FIFI PETERS: With those who are coming, although profits fell, you’re still making a profit and revenue growth did tick higher although at muted levels. But for customers who are still coming to you right now, what are some of those big items that they are buying? Is it tiles, is it some of the bathroom stuff? Is it some of the kitchen stuff? Can you just give us that detail?

LANCE FOXCROFT: Yes. customers still come to us for a basket of goods, but tiles is our biggest merchandise category by far.

We’ve seen trends with customers shopping up, but we’ve also seen that our local manufacturing – which is a big portion of our sales, especially through our top 10 CTM brands – provides price points and affordability that enable entry-level consumers to still buy from us. So it’s a bit of a mixed basket.

We have invested in the last few years into our bathroom shopping experience at CTM, and we have become a destination for taps and showers and other products. But tiles are still by far our biggest contribution in sales.

FIFI PETERS: And the imports, or specifically the supply chain – what’s that looking like for you right now? We have had a number of companies complaining about the challenges of getting as many goods in as they’d like, because of the real challenges and the shortfalls on our port lines. What has the experience been like for Italtile?

LANCE FOXCROFT: Our experience has been quite positive. The international supply chains were quite disrupted during the pandemic, with the factories closing and shipping being significantly delayed. But we’ve seen in the last year that come back.

The lead times are back to normal from overseas factories and shipping costs have come down dramatically.

There is a decreased global demand for products, which has made pricing internationally also come off a bit. And with the decline in shipping costs, it’s now quite attractive to import some of the products again.

So our experience has been quite positive and we put a bit of stock behind our imports during the disruptive supply chain and that swelled stock holding a bit, and we’ve brought that right back to pre-pandemic levels now and we are back to our normal lead times and stock position.

FIFI PETERS: Lance, you also opened five new stores in the year under review, taking your total store count to 216, as you mentioned earlier. Where were these stores opened, and what are your expectations for their performance?

LANCE FOXCROFT: Oh, we actually opened seven stores, one of which was an online web store, and we opened one store in Zambia for CTM.

We opened a Protea Glen in Soweto, and then we opened five TopT stores, which are distributed more in the areas around the urban centres, more rural areas, catering for the developing market. So we’ve seen increases in volumes through TopT, albeit small.

When you strip those out, the like-for-like performance for our three brands, TopT, CTM and Italtile, which cater for a broad segment of the market together, is more or less a similar performance across all three brands.

FIFI PETERS: The goal last year to increase profits and raise market share, that goal has not been met because of reasons you’ve already explained to us. What is your goal for the year ahead?

LANCE FOXCROFT: We continue to aim to take market share. We are concerned that consumers are still under pressure and interest rates remain high, and we could be in for interest rates that are [in] a higher-for-longer scenario. But we know we can execute better, especially in our manufacturing division, and we continue to aspire to grow our market share.

FIFI PETERS: Okay.

LANCE FOXCROFT: We have a celebration this year; CTM is turning 40.

Customers have continued to trust us for 40 years to give the quality and fashion at affordable prices to improve their homes, so we have quite a bit of ongoing promotion to give some prizes and low pricing back to our customers during this period – and hope they celebrate the birthday with us.

FIFI PETERS: Well, they say that life begins at 40, Lance, and it’ll be interesting to see the new chapter then for Italtile in the period ahead.

We’ll leave it there for now, sir. Thanks so much for your time. Lance Foxcroft is the CEO at Italtile.

 

Reference

Denial of responsibility! My Droll is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
DMCA compliant image

Leave a Comment