Retail Stocks in Johannesburg Set for Longest Drop in 6 Months

  • Weak economy, high debt and unemployment weigh on retailers
  • Truworths leads decline, Woolworths falls to 15-month low

South African retail stocks had the longest losing streak in six months as weak growth prospects for the economy cast doubts over consumers’ ability to spend.

The 11-member FTSE/JSE Africa General Retailers index slipped for a sixth day, dropping 0.7 percent to the lowest since March 16 in the greatest sequence of declines since Dec. 4. Clothing company Truworths International Ltd. led the slump before data expected to show that growth in retail sales slowed to 2.5 percent in March from 2.8 percent in February, according to 10 economists surveyed by Bloomberg.

Retailers are contending with “very, very low and protracted low economic growth, which has an impact on employment -- with very low real-wage growth, declining employment and on top of that, rising inflation,” Alec Abraham, an equities analyst at Sasfin Holdings Ltd.’s securities unit Johannesburg, said by phone. South African consumers remain highly indebted and the savings rate is negative, he said.

South Africa’s economy contracted by an annualized 1.2 percent in the first quarter, the national statistics agency said June 8. Business confidence in the continent’s most industrialized economy fell to the lowest in almost 23 years last month and the economy will probably expand at the slowest pace since the 2009 recession this year, according to forecasts from the government, the central bank and the International Monetary Fund. The latest retail-sales figures are due at 1 pm in the capital, Pretoria.

“Because of all those macro reasons, we’ve maintained that retail sales are not going to be robust,” Abraham said. “You have been seeing it in slowing sales growth of a number of the retailers.”

Truworths fell 2.3 percent to 88.82 rand in Johannesburg by 11:47 a.m., declining for a sixth day. Woolworths Holdings Ltd. was 0.6 percent lower at 78.84 rand, retreating for an eighth day, the longest sequence of drops since 2007 and set for the lowest close in 15 months.

A slump in commodity prices, a drought, weak export demand and policy uncertainty exacerbated have weighed on the South African economy. Inflation was 6.2 percent in April, beyond the central bank’s 3 percent to 6 percent targeted range. The unemployment rate rose to 26.7 percent in the first quarter, the highest in at least eight years, as factories, wholesalers and retailers cut jobs.

“We’re starting to see credit quality starting to deteriorate again, so you’re going to see retailers and banks probably holding back on the reins in terms of granting credit,” Abraham said. “Not much out there suggests that retail sales are going to be booming and that the retailers themselves are going to be pushing out big revenue growth numbers.”