Furniture Mart, the biggest furniture chain store in the country, got cheers from the market over its half year results to the end of January as its revenue grew at a stunning rate that is supported by its expansion programme.
The furniture company, which is currently operating about 70 outlets, is headed by one of the wealthiest people in Botswana, John Mynard. It saw its revenue growing at 32 percent to the end of January to P 247.8 million, the rate that for a long time could only be seen in the banking sector. Further, income after tax edged up 45 percent to P 18.1 million.
“The main reason for the significant growth in income after tax is that last year’s mid-year results were relatively weak, as they included substantial start up for the Home Corp division,” said Martin Makgatlhe, the Managing Director of Motswedi Securities. “Management has implemented several changes to the debtor collection strategy and these changes have been reflected on improved collections, reduced arrears and reduction in the provision of bad debt,” he added.
Furniture Mart is proving to be one of Botswana’s biggest companies and has branches in Namibia and South AfricaÔÇöunder Xtreme stores. In South Africa, the company is mainly concentrated in the rural areas but it is thought that it will eventually move into the urban areas.
“Revenue grew by a stunning 31.7 percent to P 248 million. This was mainly driven by the increase in the number of stores during the year,” a researcher at African Alliance, Pulafela Isaacs, said.
Under its new plan, the company is eyeing to increase its presence in the remote areas of South Africa targeting the burgeoning low and middle class as the country is experiencing the credit retail boom. The move is expected to compliment the profit margins in the mature markets of Botswana and Namibia where it is already a dominant player.
“South Africa has seen a huge boom in credit retail in the past two years on the back of low interest rates and retail optimism,” Stockbroker Botswana has said, adding that “the quality of debtor book will be of paramount importance to the success of the South African expansion and whilst current experience suggests that there is no cause for concern the potential risk of increasing debts exists.”
Further, the company which operates under Xtreme Discount is expected to benefit from the larger South African population which tops 40 million but it will face resistance from some of the already existing and Johannesburg Stock Exchange listed stores such as Ellerines and Joshua Doore which have close to 200 outlets in that country alone.
“Management points out that the growth in the aggregate wealth of the lower and middle income earners, the credit pie in South Africa has got larger, allowing room for growth, particularly for niche operator,” the research note said.
“Furniture Mart intends to continue expanding by opening new stores and currently several Xtreme and Home Corp sites are being examined. By July 2008, a further three branches are expected to be opened while four Furmart stores are expected to be expanded or revamped,” Makgatlhe said.