Mr Price bucks retail sector gloom
bdlive.co.za - Nov 19th 2014, 10:52
Cheap and chic cash-based retailer Mr Price bucked the doldrums in the broader retail sector to report a 23% increase in first-half profit on Monday.
Mr Price’s budget-conscious offerings continue to appeal to shoppers, giving the group consistent market share gain. Its peers such as The Foschini Group and Truworths, who have adopted a more cautious approach to credit, are battling high levels of consumer indebtedness.
Despite the headwinds facing the local retail sector, including rising living costs and unemployment hovering near 25%, Mr Price reported diluted headline earnings per share of 349c for the 26 weeks to September 27, from 283.6c a year ago. Net income was R921m, compared with R747m previously, while sales advanced 15% to R8.3bn.
It did not matter whether times were good or bad, people always responded to "good value", Mr Price CEO Stuart Bird said. "There is a view that shoppers are down trading, so we’re doing well but the fact is that we’ve taken market share when there was an upswing in the retail sector too."
At Mr Price Apparel, sales were up 19.7%, and 15.1% on a comparable basis, to R4.6bn. Mr Price Sport grew sales 15.3%, and comparably, 3.4% to R497.3m.
Miladys sales decreased 0.8% to R659.3m. This was a result of the tight credit environment and incorrect merchandise calls in the casual-wear department.
The group’s numbers were higher than Sasfin Securities analyst Alec Abraham had expected, but there were "certainly some soft" patches.
"It was with disbelief that every year I saw Miladys doing reasonably well, but the pressure had to give. The problem is that its target market is very cost conscious."
The group’s home chains, such as Sheet Street and Mr Price Home, also failed to impress. "Almost across the board, volumes were negative or flat in (Mr Price’s) home chains," Mr Abraham said.
Homeware and furniture are last on consumers’ shopping lists.
Mr Price ended the period with cash resources of R2.1bn and a debt-free balance sheet. About R1.1bn will be used to build a distribution centre in Durban.
Sales outside SA increased 25.4% to R690.9m.
Setting up an African strategy is de rigueur for retailers looking to diversify their income streams. Nevertheless, there is a caveat: Africa is not an easy place to do business.
Risks include poor transport and infrastructure, high rentals, corruption and red tape.
The group acquired the Zambian franchise operations during the review period. Like upmarket player Woolworths, Mr Price has embarked on buying its African franchise licences back, ultimately giving it more control.
"To run a franchise operation is pointless … they don’t bring anything to the party or add any particular value to the customer," Mr Bird said. "It is just an additional link in the chain with extra overheads…. In terms of our brand, they do not operate it the way we would want to. By the end of next year, we will take back Tanzania and Mozambique when their licence comes to an end.
"The other big one is Kenya, but they have rights until 2021."
Mr Bird said the group planned to open 41 new stores in the second half of the financial year. Nigeria and Ghana would get two stores each and Zambia one.
Mr Price’s online sales in SA grew 195.3% to R44.7m.
The company joins local retailers entering the e-commerce fray, highlighting the growing trend towards capturing online trade in a bid to take market share. With ever-greater numbers of time-poor and tech-savvy shoppers, convenience is a key factor. Mr Price’s e-commerce platform was launched in 2012 and it now ships to more than 130 countries.
"Getting space in Africa is difficult and expensive," Mr Abraham said. "What they’re certain of is that virtually every African has a cellphone in hand and their plan is to penetrate the market via the mobile until they get critical mass in bricks and mortar stores."
A dividend of 211.5c was declared, up 25.9%.
Mr Bird said conditions were expected to remain challenging in the medium term.From DFM Publishers (Pty) Ltd
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