Harare — RETAIL group Truworths Limited is targeting importing fabric and finished products directly from China to reduce costs.

They intend to roll out the merchandise in their lower income stores.

Group chief executive Mr Themba Ndebele, told an analyst briefing for the interim period ended January 2010 that a shift towards importing finished goods was on the cards.

Direct importation of raw material is expected to increase the group's earnings before interest and tax, depreciation and amortisation margins from 49 percent to 60 percent.

Meanwhile, the group sees little hope in continuing clothes manufacturing for long because they are not as competitive as in other countries. It costs the average local manufacturer US$12 to make a pair of denim jeans while it costs Lesotho manufacturers only US$6,60.

The disparity is even worse when compared to countries like China, with whom they are competing for local customers.

Having witnessed a surge in credit customers the group is fast increasing its sales pool. However, they cannot spontaneously grow their book given the risk of defaulters and their possible effect on cash flows.

As at January 3, average sales per active customer stood at US$106 for Truworths and US$91 for Topics, while average balance per customer was US$105 with a collection rate of 36 percent.

Against a norm of 33 percent, the group is therefore deemed safe within its cash flow cycle.

Truworths upgraded annual sales forecasts from US$7,2 million in November to US$14 million at a gross margin of 49 percent. The group also revised its 2011 gross margins to 60 percent as a result of their strategy to import fabric and finished goods from China.

Operating expenses should see a marked improvement as utility suppliers normalise their billing systems and landlords adjust rentals to match the current economic situation.

During the period under review, the group released an impressive set of results beating prior forecast of

US$600 000 per month to turnover US$5,9 million from a monthly average of US $975 230.

At a gross margin of 49 percent, they posted a gross profit of US$2,9 million.

Expenses, which were 43 percent of revenue, pulled pretax profits to US$348 480, while a tax credit of US$74 005 pushed them to post attributable earnings of US$422 485.

During the same period the Truworths balance sheet grew by 128 percent to US$5,8 million as it increased current assets inventory, receivables and cash from US$1,4 million to US$4,6 million.

The group's net asset value closed the half-year at US$1,6 million, but as they were struggling to stabilise working capital cycle, they closed the period overdrawn by US$904,039.