Furnmart, the furniture listed company, beat analysts expectation with its full year results with a 34 percent net income growth amid concerns that its regional expansion drive would eat on the bottom-line.
The giant furniture shop with over 70 outlets in Botswana, Namibia and South Africa attributed its bullish performance to a number of factors, such as income streams from new outlets and improved performance from existing stores.
According to the results, up to July 3 this year, revenue shot up to P 189 million against P 134 million in the previous year, while net profit was up 34 percent to P 26 million compared to P 19.7 million.
“This are good results given that the company is in the middle of a major expansion exercise,” Gregory Matsake of Capital Securities said Friday.
Furnmart is currently in an offensive expansion plan into the northern areas of South Africa where its managed to open a number of stores over the last 12 months to end of July under the brand Xtreme Discount.
The move is aimed at pushing its past and present rivals of South African origin against the wall in the backyard. These include the listed heavy weights like Ellerines, Joshua Doore and others whom between them operate around 200 stores within South Africa alone and enjoying the credit retail in country of close to 60 million people.
“The geographical expansion of the group remains the growth story and the full benefits of it will flow through to the bottom-line in two years time,” a research note from the sponsoring broker, Stockbrokers Botswana said.
The research note pointed out that the South African outlets, which are in the Limpopo and Northwest province area, targeted at the burgeoning low to middle income brackets, which is benefiting from the infrastructure developments and credit boom that is also aided by low inflation rates in that country.
“The South African growth has required substantial investment into management and store start up costs- particularly an investment into debtors book. We estimated an initial investment of at least P 2 million per store.
From that investment, it will be 2-3 years before the full benefit of the business written is wholly reflected in the income statement given the fact that the finance income is only brought to book as it is earned,” Stockbrokers said in its pessimistic report.
However, in its financial statement, the company said that the intention is to expand both Furnmart and its new concept, Home Corp, aggressively following “very positive “ response to its bell-weather Home Corp store in Gaborone.
The intention is to start another Home Corp in Namibia before the end of the year, and another in South Africa around March next year.
But it warned investors not to read too much on its income growth saying that the outlook seems to be brighter going forward.
“Due to the excessive elements of start up costs that exist in the credit business, income growth will always lag revenue growth for the next year. Income growth will, however, remain relatively strong,” the financial statement said.
The company declared a dividend of 11 thebe per share and closed the week Friday unchanged at 650 thebe.