Truworths International Limited (JSE: TRU), the esteemed fashion retailer, raises caution flags amid a deceleration in profit growth amidst challenging economic conditions in South Africa. The retailer reported a 3.6% increase in half-year headline earnings per share, significantly lower than the 10.3% growth recorded in the previous year. This slowdown is primarily attributed to:
High inflation and interest rates have squeezed disposable income, leading South African consumers to cut back on discretionary spending like clothing and footwear, impacting Truworths Africa, the company’s biggest business segment. Operational disruptions have also weighed on the company’s performance, with port congestion in South Africa and global shipping disruptions caused by the Houthi militia attacks in the Red Sea hampered merchandise deliveries, negatively affecting sales during the peak trading period.
However, there are some bright spots. Truworths’ UK-based shoe chain, Office, displayed resilience with a 15.6% increase in sales (in sterling terms). Additionally, the company is taking steps to mitigate challenges by ramping up local production and utilizing stock fabric through design centers and local suppliers to lessen dependence on imported merchandise. The company is also diversifying product offerings by expanding into non-clothing areas like cosmetics and mobiles to cater to evolving consumer preferences.
Technical
The daily chart shows that Truworths‘ share price is currently attempting to recover after five consecutive sessions of losses. While the price trades above the long-term 200-SMA (red line), it recently dipped below the shorter-term 50-SMA (blue line) and 100-SMA (orange line), indicating a potential shift in momentum towards the bears.
The RSI (43.06) is also on an upward trajectory, attempting to recover from the recent sharp declines. This suggests a potential short-term bounce, but the proximity to the 50.00 level indicates a lack of strong buying pressure.
If the bulls can regain control and push the price above the shorter-term SMAs with significant volume, the 23.60% Fibonacci retracement level (7,558 cents) could act as initial resistance. A successful break above this level could lead to a further rally towards 8,130 cents and potentially a five-year high of 8,441 cents.
Conversely, if the price action maintains momentum below the shorter-term SMAs, the 38.20% Fibonacci retracement level (7,008 cents) could become initial support. A further decline below this level could see the 50.00% and 61.80% Fibonacci retracement levels (6,564 cents and 6,286 cents) come into play.
Summary
Truworths’ outlook remains uncertain as the share price navigates between technical resistance and support levels. While the recent slowdown and operational challenges raise concerns, the resilience of its UK operations and potential for a short-term bounce offer a glimmer of hope. Significant levels to watch include resistance at 8,130 cents, support at 7,008 cents, and a critical level at 7,286 cents.
Sources: TradingView, Truworths, BNN, SABC, News24, Moneyweb.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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