Strong performance continues into second half of the year
May 26th 2011, 07:26
(Durban, 26 May 2011) This year, Mr Price Group celebrates the 25th anniversary of the change in control in the company. The compound annual growth rate in share price and dividends per share over this period has exceeded 25%, with headline earnings per share growing at a compound annual rate of 24%. Other significant milestones have also been achieved this year – retail sales have exceeded R10 billion and profit attributable to shareholders has exceeded R1 billion for the first time.
Retail sales for the 53 week trading period ended 2 April 2011 increased by 12.9% (52 weeks: 10.5%). This compares favourably with the total retail sector, which, as reported by Statistics South Africa, grew by 7.5%. Sales in like-for-like locations were up by 10.2% (52 weeks: 7.8%). More than 180 million units were sold, an increase of 9.9% (52 weeks: 7.6%) and product inflation of 3.0% was recorded.
CEO Stuart Bird commented: “Sales growth higher than the market, improved gross margin percentages and cost control have been the main features of our results this year. Clearly our customers have responded well to our merchandise offers and once again our two largest trading divisions, which combined constitute 75% of group sales, were voted the most loved and frequented chains in their respective markets.” The operating margin increased by 2.9% to 13.4% of retail sales. “Although there has been some benefit from the strong Rand, most of the gain has been driven by improved procurement practices which resulted in lower markdowns and by ensuring that our expense growth, at 9.2%, was lower than our sales growth,” said Bird.
Profit attributable to shareholders increased by 50.0%, while headline earnings per share increased by 51.3% and by 45.6% on a 52 week basis.
The Apparel chains increased sales and other income by 13.1% to R7.8 billion with comparable sales up by 8.5%. Operating profit increased by 31.0% to R1.3 billion, resulting in the operating margin improving to 16.9%. Mr Price Apparel, which represents 55.3% of group sales, recorded sales growth of 14.4% to R5.9 billion and continued to capture market share and increase profits. Mr Price Sport opened six stores and grew sales by 27.0%, exceeding R500 million for the first time and delivered a greatly improved financial performance. Miladys grew sales by 2.1% but an improved gross profit margin and tight expense control resulted in operating profit increasing by 21.5%.
The Home chains grew sales and other income by 12.3% to R3.1 billion with comparable sales up by 14.0%. Operating profit increased by 168.1% to R271.2 million, and an operating margin of 8.8% was achieved. Mr Price Home recorded a sales growth of 13.0%, breaching the R2 billion level for the first time. The gross profit margin improved by 3.6% and the chain contained expenses, resulting in operating profit increasing significantly. Sheet Street grew sales by 12.8% despite closing a net nine stores. Comparable sales were up by 14.3% and a substantial improvement in operating profit was achieved.
The group continues to reflect a healthy financial position, with cash resources of R1.4 billion being driven by a high cash sales component of 83.8%.
Stock turn increased from 5.9 to 6.6 times as Project Redgold continued to deliver efficiencies. Over the last four years, inventory has only increased by 5% while sales have increased by 48%.
The debtors’ book has been managed in a controlled, responsible manner and the net bad debt to book ratio improved from 7.0% to 4.5%. The impairment provision has been set at 9.1% of gross accounts receivable.
“However it’s not all about the numbers, we owe our success to our associates and partners. Without them, these results would not have been possible,” said chairman Alastair McArthur. Associates have benefited from the group’s good results through increased performance-based incentives and dividends received on the shares that were awarded to them at no cost. “A strong share price performance will provide added long term benefit to them and their extended families,” said McArthur. Since the inception of the ‘Partners share scheme’ in 2006, which caters for associates earning R9 000 or less per month, the company has paid dividends totaling more than R26 million to participants, who have each seen their original award of shares increase in value from R21 000 to nearly R64 000. Currently more than 8 000 associates are shareholders in the company. “We are delighted that the share schemes are such a success and the link between the hard work of our people and the creation of shareholder value is clear,” he added.
The final dividend per share of 175.3 cents, which has been based on a 52 week trading period, has increased by 38.2%. Dividends for the year, which are based on a cover of 1.6 times, have increased by 45.7%. The company plans to continue lowering dividend cover and for the next reduction to coincide with the introduction of dividends tax on 1 April 2012. “We have detailed plans on how we are going to utilize our cash resources,” said McArthur. “Investments in key areas such as information technology and supply chain will generate further efficiencies and the three Mr Price divisions will be rolling out exciting new look stores. We are confident that the cash-generative business model will be able to fund both the continued growth of the business and increased shareholder returns,” McArthur added.
Potential inflationary increases, particularly in food and fuel prices, will concern both consumers and retailers. However, recently reported statistics highlight the trend of increasing real disposable incomes of households and the migration of consumers from lower to higher living standard measures (LSMs). McArthur said “This has a direct influence on our business as the number of shoppers in the LSM segments targeted by the group has increased incrementally over the years. A well-executed strategy will result in the group continuing to increase its number of shoppers, attracted by fashionable merchandise at everyday low prices.”
“During the year, Rand strength assisted in offsetting the negative impacts of high wage inflation in manufacturing, a high cotton price and cost increases due to a reduction in manufacturing capacity in China. The cotton price is now reducing and early indications are that manufacturing capacity is returning,” said McArthur.
The business is looking to the future with confidence and will continue to invest in areas which will position it for the next growth phase, both locally and beyond our borders. While the group expects a further increase in earnings in the year ahead, the growth will not be at the same rate as in the past year, which had 53 trading weeks and included a strong recovery of the underperforming chains.
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