Mr Price Group’s interim results show just what a good acquisition can do to the top line during tough times, but it wasn’t enough to lift the value fashion retailer’s earnings.
In the 26 weeks to September 30 revenue grew 26.4% to R16.8 billion, a performance that included the recently acquired Studio 88 Group (S88).
Excluding the acquisition, revenue grew only 3.5% to R13.7bn, a figure that is below average inflation.
Diluted headline earnings a share decreased 9.6% to 439.5 cents, compared with growth in the previous period of 10.8%.
An interim dividend of 283.5 cents was declared, 9.3% lower than at the same time last year, but maintaining the 63% pay-out ratio.
Store sales increased 28.8% (excluding S88: 4.1%). Online sales decreased 3.2% (excluding S88: -5.7%), against double-digit growth of 11.2% in the previous period.
Nevertheless, the market appeared to favour the results, despite the lower earnings, as the share price shot up 10.4% to R163.95 yesterday morning after the results were released.
Possibly, Mr Price reporting a “significant momentum shift in the second quarter”, had stoked optimism.
There had been sales growth improvements in all sales channels, tender types and geographies in the second quarter, resulting in market share gains and an uplift in gross profit margin.
Management said this positive trend continued into the second half, with market share up 70 basis points (bps) in October 2023, according to the RCL (Retailers' Liaison Committee).
“Management is confident that the margin contraction is temporary and is mainly attributable to first-quarter performance and S88’s earnings being weighted to the second half,” Mr Price’s directors said.
They said the first-half results were characterised by several challenges, such as losing about 60 000 trading hours, or R190 million in turnover, to load shedding.
Some R140m was spent to accelerate back-up power solutions and 100% of core stores now have back-up power, compared with 60% at the start of the first quarter.
Other challenges were the poor economy and consumer retail environments – double-digit inflation in food and public transport impacted the value consumer more severely, coupled with rising interest rates.
Another challenge was higher stock levels in the clothing retail sector in a highly promotional retail environment. Higher markdowns were required to clear excess inventory which had impacted gross profit margins.
Mr Price’s management said South African consumers were likely to remain financially constrained into 2024 as the recovery in employment had lagged economic activity and real wage growth had been negative.
“The recent improvements in consumer price inflation, fuel prices, currency exchange rates and unemployment will bring some respite to business and consumers. The interest rate cycle is anticipated to turn positive by mid-2024, which will alleviate consumer pressure,” they said.
Electricity supply, however, remained a risk to economic activity. An increasing risk to business was the instability of port operations. The management said, however, that they were satisfied that the group had adequate stock levels for the coming festive season.
They said their fashion differentiation and knowledge of the South African consumer had enabled it to withstand many historical economic cycles and periods of increased competition.
They said acquisitions had been earnings accretive and there were several attractive opportunities, including Mr Price Kids, which now had 16 stand-alone stores that were exceeding expectations. The group planned to open 140 new stores during the rest of the financial year.
BUSINESS REPORT