Gross margins improved to 16,8% against 15,8% the prior year but net margins after tax (PAT) remained thin at 1,66% and compare to the South African retail market average of 2%-3%. Stiff competition led to unusual price mark-downs, coupled with adverse movements on exchange rates on imported products impacted heavily on margins.
The prospects of the company remain bright as the company has the capacity to increase its revenue through increased floor space as it continues to open and refurbish its shops. The company has 60 shops countrywide.
The retailer’s headline earnings per share rose to 0,43 cents from 0,17 cents. The market was upbeat after the results announcement and OK Zim gained 0,20 cents to close the day at 9,30 cents and this buoyed the Retail Index to close 2,34% firmer at 154,08.
A new Bon Marche branch will be opened soon in the Westgate Shopping Complex and refurbishments have already been completed in OK Queensdale, OK Avonlee, OK Kwekwe, Bon Marche Belgravia and shops rebuilt include OK Masvingo and OK Chiredzi.
OK Zim claims to have the greatest market share in comparison to TM Supermarkets which they claim they have the same business model in terms of setup and footprint. But the impact of new entrants in the retail industry and well established competitors like Spar definitely absorb a huge market share which OK Zim underestimates.
Maybe with their recent face uplift of their shop outlets, it may give them a competitive edge in competing with the Spar Franchises which seem to command an up market clientele and can sell high margin products. Stiff competition in the sector causes price wars and price mark-downs will continue to prevail in the retail sector.
It is still a long way before local manufacturing industry is fully capitalized given the prevailing tight liquidity conditions and most locally produced goods are relatively expensive as compared to imports. The retail industry will definitely have to rely on imports for a considerable period of time but continued reliance on imports will always exert pressure on margins as adverse movements in exchange rates can cause costing and pricing nightmares.
Post published in: Business