Truworths International Holdings fell the most in five months in Johannesburg as the South African retailer joined the ranks of those feeling the pain from the UK's ailing shopping streets.
Truworths said on Tuesday British footwear subsidiary office had started debt restructuring talks with its lenders in the face of the “depressed retail trading environment.” The stock slumped as much as 6.5%, the biggest drop since January, making it the second-worst performer among Johannesburg’s general retailers this year.
“Investors are skeptical about anything that concerns exposure to the UK and issues to do with gearing, and are not in the mood to entertain that talk,” said Peter Takaendesa, a money manager at Mergence Investment Managers.
Office, which Truworths acquired in 2015, has about $56 million of debt, with “a significant” portion due to be settled through a lump sum payment in December 2020, the Cape Town-based company said in a statement. UK retail sales dropped the most since at least 1995 in May, industry figures show, with clothing and footwear among the worst-hit areas.
“If the UK retail sales figures for May are anything to go by, which showed contractions across every major sub-category, it looks like investors are nervous about the retailer’s ability to service the debt,” Unum Capital trader Rob Pietropaolo said in response to emailed questions.
Conditions at home are hardly better. South African retail stocks have been dragged lower this year as a weak economy constrains disposable incomes and damps consumer demand. The sector has dropped 14%, compared with the 10% advance in the benchmark index.
“Retailers are more likely to struggle in the foreseeable future as consumers become ever more cash strapped,” Pietropaolo said. “I expect the sector in general to remain under pressure.”