- General retailer Mr Price reported interim results which saw group revenue rise 6.5% to R13.3bn and retail sales gain 6.0% to R12.6bn. However, on a comparable same store sales basis, growth disappointed as it fell 0.3% due to a competitive retail environment and constrained consumer.
- The major factors which impacted revenue were loadshedding which accounted for 56% of trading days being interrupted during the period. The group estimates that over 80,000 trading hours were lost as a result. Additionally, the inconsistent and non-payment of social grants during the period also weighed.
- Mr Price’s gross profit margin expanded 60 bps to 40.3%, supported by a once-off inventory write-off in the prior corresponding period due to the civil unrest.
- EBIT improved by 13% to R1.9bn, as expense growth was well contained (increasing 5.9%), which saw the operating margin expand 80 bps to 14.7%.
- Headline earnings per share (HEPS) increased 10.6% to 496.0 cents and the dividend increased 10.6% to 312.5 cents a share.
- The group ended the period with available cash of R3.3bn but the payment of R3.6bn for the Studio 88 acquisition took place after the periods close, which reduced the group’s cash reserves. However, Mr Prices highly cash generative business model should help it rebuild its cash balance for investment opportunities in the new year. Cash sales constitute 84.9% of group retail sales and increased 5.2% during the period.
- With a deteriorating macroeconomic backdrop, the rise in inventories (up 35.6%, or up 25.5% excluding goods in transit) is concerning for margins if the November/ December performance is poor. Even with Studio 88 having a positive impact on earnings going forward, a tough macroeconomic environment is likely to offset those gains. I am a shareholder of Mr Price for clients in managed portfolios.
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