Mr Price Group Limited’s cash-based, fashion-value model produces strong results
Issued by Corporate Image on behalf of Mr Price Group Limited - Nov 18th 2014, 14:50
Despite the headwinds facing the local retail environment, Mr Price announced diluted headline earnings per share of 349.0c, up 23.0% and dividends per share of 211.5c, up 25.9%.
In line with the intention to more closely align the dividend payout ratios at each reporting date, the interim dividend payout ratio has increased from 55.1% to 57.0%. No change is expected to the annual payout ratio of 63.0%. The Group has achieved a 10-year compound annual growth rate in interim headline earnings per share of 28.0% and DPS or 32.0%.
Retail sales increased by 14.4% (comparable stores 10.6%) to R7.9billion. Cash sales grew strongly, recording growth of 17.5%, and constituted 80.9% of total sales. South African sales growth of 13.4% was well ahead of the market (STATS SA Type D retailers), which grew by 7.1% for the five months to August. The opening of 38 new and the closing of two stores resulted in weighted average trading space increasing by 5.3% and the Group operating 1 115 corporate-owned and 14 franchise stores.
“We are pleased that we are achieving good sales growth in all markets and new channels. This is in line with our strategy o entrenching and growing our position in South Africa and building the foundations necessary to enable our international goals,” said CEO Stuart Bird.
“Two years ago, we launched our online offer under the branding MRP.com and in August this year Mr Price Apparel opened a new generation MRP store at the V&A Waterfront in Cape Town. This new format is a big step forward in our strategy of integrating our stores and online channels to ensure that customers receive a seamless experience,” said Bird. “Importantly, this is not a ‘one-up’ concept – we’re offering the same merchandise at the same prices as our other stores,” he added.
Group online sales in South Africa (SA) grew by 195.3% to R44.7million. The Group also launched MRP Mobile, a 55% help subsidiary, offering cellular producers to customers. As a MVNO (mobile virtual network operator), no investment in network infrastructure is required.
Sales to customers outside SA grew by 25.4% to R690.9million and now represents 8.8% of Group sales. Growth in Nigeria and Ghana was 26.1% and, during the period, the Group acquired the Zambian franchise operations. International online sales were up 142.3%, albeit off a low base.
Other income rose by 23.0% to R345.0million mainly due to increases in debtors’ interest and the sale of insurance products.
The merchandise gross profit margin increased from 41.7% to 41.8% of retail sales. After accounting for airtime sales, which attract a lower GP percentage, and MRP Mobile, which is impacted by recognising customer acquisition costs upfront relative to the subscription period, the Group GP percentage was unchanged at 41.4%. Selling and administration expenses grew by 11.0%, and represented 28.2% of retail sales and other income, an improvement on last year’s 29.2%. These costs were impacted by inflation, space growth, and the investment in people and systems in key areas such as fashion trending online and MRP Mobile.
Profit from operating activities increased by 22.6% and the operating margin (calculated on a revised basis in both periods of operating profit / retail sales and other income) improved from 14.1% to 15.1%.
The Apparel chains increased sales and other income by 16.4% (comparable 12.5%) to R6.0billion. Operating profit rose by 21.5% to 1.0billion and the operating margin increased from 16.8% to 17.5% of retail sales and other income. Mr Price Apparel, which constitutes 58.7% of Group sales, had a very good first half and once again achieved market share gains in its target market. Double-digit growth was achieved in all major merchandise departments, and the division’s growing online presence had a positive impact on store performance. Sales were up 19.7% (comparable 15.1%) to R4.6billion and operating profit was significantly ahead of budget and the prior year. Mr Price Sport grew sales by 15.3% (comparable 3.4%) to R497.3million and an improved markdown performance contributed to a significant increase in operating profit. Miladys was impaced by the tight SA credit environment, which was anticipated, and incorrect merchandise calls in the casualwear department. Sales decreased by 0.8% (comparable 0.0%) to R659.3million. Excellent cost control was insufficient to offset the reduction in sales and gross profit margin, with the result that operating profit was lower than last year.
The Home chains increased sales and other income by 9.9% (comparable 5.7%) to R2.2billion. Operating profit rose by 19.5% to R240.3million and the operating margin increased from 11.6% to 12.6% of retail sales and other income. Despite homewares purchases being more discretionary in nature Mt Price Home, which targets customers in the upper LSM 8 – 10 range, delivered results that were well ahead of budget and the prior period. Results were driven by sales growth of 11.8% (comparable 7.6%), an improved gross profit margin, and costs, which was affected by its customers, who are in the mid LSM 5 – 8 range, being more impacted by the current economic conditions. Elements of their product offer did not fully meet their customers’ tastes, with the result that operating profit was below the prior year.
Gross trade receivables increased by 7.5% to R1.8billion. Net bad debt increased from 6.8% to 7.2% (September on September) as a percentage of the debtors’ book, but reflected an improvement from the 7.6% achieved at March 2014. The provision for impairment, currently 9.3% of book, will continue to be conservatively set during a period where consumers’ disposable income is under pressure.
Despite increased dividends and higher capital expenditure, the Group ended the period with cash resources of R2.1billion and a debt-free balance sheet.
Although consumer confidence increased slightly in the third quarter of 2014, retail trading conditions are expected to remain challenging in the medium-term. The Group has some dependency on lower LSMs (Sheet Street) and credit (Miladys). In addition, the sales growth of 15.2% (comparable 11.3%) in the second half of the last year has set a high base. Although October sales grew by 17.6% (comparable 13.1%), this was aided by a shift in school holidays from September in the prior year to October in the current year. However, the resilience of the prospects, the Group will continue to enhance systems and infrastructure, often incurring costs ahead of benefits derived there from. Approximately 41 new stores are planned to open in the second half of the year.
Mr Price Group Limited is a high-growth, omni-channel, fashion-value retailer:
• Targeting younger customers in the mid to upper LSM categories
• Retailing predominantly own-branded merchandise
• 81% of sales are for cash
• 1 115 stores and online channels offering full product assortments
• 28-year CAGR in HEPS 23% and DPS 25% (to March 2014)
• Market capitalisation of R52billion, ranked 35 on the JSE
• Included in MSCI Emerging Markets Index
• 54% of shares held by international investors
• Ranked 4th in Business Times Top 100 Companies, highest ranked retailer, and JSE Top 40 Index company
We have recently added three new variants to our Magpie range of home-style pies: Mutton Curry, Vegetable Curry and Chicken Peri-Peri.
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