* Truworths 18-weeks sales up 16 percent
* Foschini's H1 sales up 12.6 percent
* Shares in both companies up between 2-3 percent
(Adds Truworths, updates shares)
By Tiisetso Motsoeneng
JOHANNESBURG, Nov 8 South African retailers
Foschini and Truworths reported a jump in
sales on Thursday, boosting their stock prices further as
investors bet consumers will carry on shopping thanks to wage
increases, cheap borrowing and government grants.
Share prices for retailers in Africa's top economy have
surged over the past two years, with some more than doubling,
which is beginning to give some investors cause for concern.
"We don't believe that you can carry on seeing this kind of
growth," said Nic Norman-Smith, chief investment officer at
Lentus Asset Management in Johannesburg.
"You've got an increasingly indebted consumer base who are
feeling stronger because they're earning more. They're even more
bullish to take on more debt."
Household debt in South Africa stands at 76 percent of
disposable income, according to government statistics, while the
unemployment rate is stuck at about 25 percent.
Retailers have also been helped by a surge in unsecured
lending - higher-risk loans such as credit cards and store
credit. Unsecured loans surged 21 percent in the year to June
and now total $43 billion, according to central bank data.
The Foschini Group, a retailer that sells everything from
cosmetics to furniture and targets middle-class customers,
reported a 13 percent increase in first-half sales on Thursday.
Bigger rival Truworths International, which targets
up-market clothing shoppers, said sales in the first 18 weeks of
its fiscal year rose by 16 percent, with the results boosting
share prices further.
Shares in Foschini closed up 3.8 percent at 131.78 rand,
bringing its gains this year to 22 percent while the Truworths
price was up 3.1 percent at 99.89 rand, a rise of 34 percent so
far this year.
The two best performing South African stocks this year are
also retailers. Woolworths Holdings, which sells
high-end food and clothing, has surged 78 percent and discounter
Mr Price has jumped 75 percent, while the All-Share
index is up 18 percent.
"If you look at their earnings multiples, or any other
fundamental valuations ... they appear very stretched on all of
those metrics," said Norman-Smith.
The median price-to-earnings ratio for eight of South
Africa's largest retailers is 21 times, according to Thomson
Reuters data, double the 10.2 times of the All-Share index.
Retailers have also been buoyed by expectations of further
expansion into sub-Saharan Africa.
Foschini, which operates 98 stores outside its home market,
said the lack of available shopping malls in sub-Saharan Africa
was hampering its expansion on the continent.
"We follow shopping malls," Chief Financial Officer Ronnie
"We could easily operate 350 or 400 stores in the rest of
Africa over the next five years."
Meanwhile Truworths nearly doubled its number of shops
outside South Africa to 29 in the year to end-June.
Highlighting lack of shopping infrastructure in the rest of
the fast-growing continent, Africa's biggest supermarket chain
Shoprite plans to invest $205 million on property
development in Nigeria.
($1 = 8.6518 South African rand)
(Additional reporting by David Dolan; Editing by Greg Mahlich)