Another Truworths’ annual general meeting has come and gone and still no sign of very long-serving CEO Michael Mark handing over the baton to someone younger. And even less sign the shareholders could give a damn about his 35-plus-year tenure as CEO; every resolution presented to the meeting on Thursday was overwhelmingly backed by shareholders.
Most had presumably voted ahead of Thursday’s event, before they got wind of the trading update and a 4.3% drop in sales in the 17 weeks to 25 October.
Shareholders’ tolerance has been remarkable: over the past five years, Truworths’ operating margin has slumped to 19.2% from 24.7% and return on equity is down to 25% from 50%. The share price has fallen 16% over that period.
However, the shares bounced 5% shortly after the board announced group sales had dropped to R6.5bn with the African operations suffering a 2.7% knock to R4.1bn. Office UK’s sales edged up marginally in sterling terms but the stronger rand knocked the contribution to a 6.9% slide, taking it to R2.3bn for the 17 weeks.
As it turns out, Thursday was probably the best day to release an underwhelming trading update with almost all consumer-oriented shares on the JSE benefiting from a flurry of post-election optimism in South Africa and the US.
Also, as Alec Abraham, senior equity analyst at Otto 1890, points out: Truworths does offer a remarkably juicy dividend. So generous that it’s on a yield of just over 10%.
Paid to wait
“With that sort of generosity, investors are paid to wait; if things work out, there should be attractive upside in the share price,” says Abraham who reckons the bad news is baked into the share price. “As a discretionary retailer, if there’s any pickup in the economy, Truworths should benefit.”
Still, Anchor Capital’s Steph Erasmus is hesitant.
“I am cautious on the Truworths investment case, and remain so following today’s business update,” he tells the FM. “Its South African business is struggling, unsurprisingly given the heavily constrained South African consumer. Sales there have slipped further since August, and credit sales, which were still growing then, have now dipped slightly into decline.”
But it’s not all gloom.
“Management ran fewer promotions, which seems to have supported gross profit. Office, its UK footwear business, has picked up a little since August. But it is only just growing in pounds, and the stronger rand doesn’t help its sales once they are converted into rand,” says Erasmus. All-in-all, it’s a tricky patch, with the key November and December trading months still to come.
So: will the board persuade Mark to stay on until there is firm evidence the group is benefiting from any general economic pickup?
Recall that back in 2020 the board announced it was embarking on a CEO succession process; in 2023 it said Mark would be staying put for the time being.
By 2025, there was still no sign of movement. In his chairman’s review that year, Hilton Saven told shareholders the board had requested Mark “to remain in his role as CEO for a further period before transitioning into a consultancy role within the group”. At no stage was any attempt made to define “further period”.
Indispensable
That Mark appears to be indispensable, evident even from the way he dominated Thursday’s AGM proceedings, does not seem to trouble shareholders or the board. Remarkably, the indispensability of the key executive is not included in the Integrated Annual Report’s long list of material issues and risks.
Not that there haven’t been a commendable number of board changes since 2020; the most recent being the retirement of Saven — chairman since 2004 — after Thursday’s AGM.
However, Just Share’s Rachael Nyirongo believes not enough has been done to appoint more female directors and told the FM the board profile may be a factor in the shortage of women in the top executive tier. At the AGM Nyirongo said that women account for approximately 73% of Truworths Africa’s total workforce, but only a third of top management.
Mark acknowledged that much of the group’s focus is on female consumers and Truworths would like to have more women in top management but he said appointments are “based on merit, capability, vacancy and so on … we would prefer more women in top management and we try very hard to achieve that”.
Sarah Proudfoot, the group’s joint-deputy-CEO assured Nyirongo there are no structural barriers to women progressing in Truworths. “It is critical to our business that we have women progressing through the ranks.”
