Iconic South African R12 billion retailer hit by perfect storm

Sharenet portfolio manager Jacobus Brink said Italtile faces a perfect storm of macroeconomic headwinds, with the company acting as a bellwether for the struggling South African consumer.

The group’s latest results also revealed struggles in its Australian division, with the retailer now planning to exit this market.

Italtile is a prominent South African manufacturer, franchisor, and retailer that specialises in tiles, bathroomware, and home-finishing products.

It boasts 213 stores in South Africa and the rest of the continent, operating across well-known retail brands, including Italtile Retail, CTM, and TopT.

The company also has a footprint in Australia, where it has operated for 22 years. 

Italtile’s primary operational entities in Australia include its Centaurus porcelain tile factory and its manufacturing/import business managed under National Ceramic Industries Australia.

The company’s results for the 2026 financial year showed that the retailer is still struggling with many of the same problems it has faced for the past five years, though there are some signs of improvement.

The group’s system-wide turnover grew by a marginal 0.6% to R11.3 billion, the same level as it was five years ago in the 2022 financial year.

Its trading profit fell by 10.4%, which the group attributed to margin squeeze across its manufacturing divisions.

Italtile’s trading profit has consistently declined over the past five years, going from R2.72 billion in 2022 to R1.85 billion today.

The group has consistently struggled with margin pressure and profitability challenges, primarily driven by high inflation in input costs, including fuel, electricity, and raw materials.

It has also faced aggressive pricing from competitors in Southern Africa due to the region’s manufacturing overcapacity.

The group previously explained that tariffs have been applied in local markets, and dumping has increased in those without tariffs.

This situation has essentially led to low-cost products, including tiles, being dumped in South Africa, making it difficult for local manufacturers to compete.

Australian headwinds

Italtile also faced significant headwinds in its Australian operations, where a forensic investigation uncovered fraud.

It found intentional manipulation of results by the person responsible for the accounts, though no evidence of asset misappropriation.

Italtile said it pursued all available avenues for recourse, but in the absence of misappropriation, recovery was limited to the personal resources of the individual involved.

The group also had to provide additional cash support of R51.51 million for the business, and is now reviewing its continued presence in Australia. 

Italtile said it is in advanced discussions with a prospective buyer, with the due diligence process ongoing.

Despite its weak results, Italtile has consistently declared special dividends, though the payout was scaled back dramatically in 2026 to 25 cents, compared to 98 cents in 2025.

Analyst opinion

Following the release of Italtile’s 2026 results, Brink told BusinessDayTV that the firm is facing “a perfect storm of macro headwinds”. 

“It’s also sort of serving as a bellwether for the struggling South African consumer and just the manufacturing sector in general,” he said. 

“Earnings per share are expected to increase, but on the retail side, if you look at CTM and TopT, retail held up fairly well.”

“It seems to have been fairly stable, but the damage was definitely done on the manufacturing side.” 

He said the company was battered by a massive increase in transport, fuel, gas, and municipal energy costs. “That’s a theme we’ve been seeing across a number of retail-focused names,” he said. 

“It’s, in general, a harsh reality check for the cost of doing business in South Africa at the moment.” 

“While some of the retail brands can still attract cash-strapped customers, local manufacturing is being suffocated by a lot of these energy costs and cheap imports being dumped in South Africa.”

Despite its headwinds, Rand Swiss director and portfolio manager Gary Booysen said Italtile still trades at an attractive valuation, and its consistent dividend payouts help.

“Between R9 and R10, you’re looking at an eight to nine times earnings ratio that you’re buying this on,” he said.

“We’re looking at a decent 6% yield on the stock. Management itself is cautious for all the reasons already described.” 

He said the near-term outlook for Italtile is difficult, particularly due to the struggles it faces from cheap imports, excess manufacturing capacity, and weak construction demand in South Africa.

“It’s a difficult macro space for the business, but also a very well-run business,” he said.

He pointed out that Italtile has maintained a strong balance sheet and now holds R1.71 billion in cash.

“This is a conservatively run, good business returning money to shareholders. You’re not overpaying for it,” he said.

“I think there is some optionality if we do get anti-dumping duties put onto the sector, as this will materially change the economics.”