Recently acquired footwear and sports apparel retail chain Studio88 has delivered strongly to Mr Price Group’s 26.4% surge in half-year revenue, coming in at R16.8 billion for the 26 weeks ended 30 September 2023.
This helped the Durban-based apparel and home retail giant push through a tough economic period affected by load shedding and a weaker consumer.
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Read: Power cuts hit Mr Price half-year profit
On Thursday, Mr Price reported in its latest results that without Studio88’s contribution, group revenues would have registered a pedestrian 3.5% growth, to R13.7 billion for the half-year.
The group’s share price surged over 10% in morning trade, at above the R164 mark as investors began digesting the half-year results.
Mr Price’s share price
Challenges
However, the interim results were hit by a challenging first quarter in which the group had to plough R140 million worth of capital to shield itself against load shedding, which it says cost it about 60 000 in lost trading hours.
This resulted in an estimated R190 million in potential revenue that was not realised.
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Additionally, the quarter saw a high inflationary environment that hurt its core customer base, the value consumer, the most. Lost trading hours due to load shedding coupled with an under-pressure consumer saw the retailer leaning more on promotional activity to clear stale stock off its racks, affecting margins.
As a result, it said higher stock markdowns in the first quarter contributed to the 170-basis-point (bps) decline in the group’s gross profit margin to 38.6%
Mr Price’s headline earnings per share (Heps) dropped by 9.3% in the period to 44.9 cents, while operating profit declined slightly by 0.4% to R1.9 billion, leading to a 320bps decline in operating margin to 11.5% o of retail sales and other income.
An interim dividend was declared that was 9.3% lower, at 283.5 cents per share compared to last year’s 312.5 cents.
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Consumer pinch
The group’s 2 809 store footprint generated 28.8% higher store sales in the half-year, including Studio88, while online sales saw a marked drop of 3.2%.
To manage its exposure to the under-pressure consumer the group maintained its strong reliance on cash sales and maintaining its conversative approach to credit sales.
The half-year saw cash sales – which constitute 87.8% of group retail sales – increasing by 32% (but without Studio88, 3.8%). Credit sales only grew by 3.3% during the period, but it said that customer demand for credit grew by 14.2%.
The retailer has opted to tighten its belt and lower its approval rate to 18.6% from 27.1% in efforts to prevent new account growth in the currently fraught consumer environment.
Outlook
This is probably going to be the retailer’s approach moving forward as its guidance for the rest of the financial year notes expectations for the local consumer to remain under pressure going into next year.
“The recent improvements in consumer price inflation, fuel prices, currency exchange rates and unemployment will bring some respite to businesses and consumers. The interest rate cycle is anticipated to turn positive by mid-2024, which will alleviate consumer pressure. Electricity supply remains a risk to economic activity, however, there are expectation that the load shedding intensity moderates,” the retailer said.
The retailer further highlighted inefficiencies at the country’s ports as a looming risk to the business’s operations which they are keeping an eye on, however noting that the current instability will not impact stocks for the upcoming festive season.
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