The financial performance of the Clicks chain of health and beauty stores, owned by New Clicks Holdings, has been dented for the six months to the end of February by continued “shrinkage” — the retail industry’s term for theft — and losses in its pharmacy operations due largely to the government’s new regulations capping dispensing fees at R26, it emerged on Thursday.
Thursday’s interim results announcement by New Clicks showed that the group’s core Clicks brand recorded a 28,1% fall in operating profit ‒- to R127,7-million from R177-million — which it attributed to a R38-million loss in its pharmacy operations and higher-than-expected stock shrinkage, as well as higher costs arising from promotional advertising.
“It was a very disappointing first half of the Clicks brand,” said New Clicks CEO Trevor Honneysett.
“But the management team has been changed and we are getting back to some good old-fashioned retail discipline.”
Stock losses across the chain, which came to light last year and which the group previously believed had been limited to the category of cellphone airtime cards, were discovered to be much more widespread, Honneysett revealed.
Although they had been expected to decline with the replacement of the cards by virtual airtime, they had instead remained relatively steady.
“The Clicks shrinkage is within the worldwide norm for health and beauty retailers of between 2% to 3%, but it is too high within this zone,” the CEO said without revealing the actual figure.
As part of the ongoing upgrade of the group’s information systems, improvements in stock taking and other activities would soon help to reduce the shrinkage, he added, as would continual improvements in the attitudes and levels of motivation among staff now being engendered by the new Clicks management team led by Michael Harvey.
Also adding to the problems being experienced by Clicks was the R38-million loss incurred by the pharmacy operations, which Honneysett ascribed largely to the reduction in margin from the low dispensing fee prescribed by the medicine pricing regulations. The losses were mainly seen in the group’s smaller and non-integrated pharmacies, he noted.
The losses had been incurred despite pharmacy turnover holding steady over the period, while smaller pharmacies not yet integrated into Clicks stores had also underperformed.
“The pharmacy model is proving successful in the large Clicks stores where dispensaries have been introduced,” the CEO said, “reflected in the higher front shop turnover through increased footfall”.
Clicks now has 37 integrated pharmacies, and the group was on track to open a further 23 by the end of August and another 30 before the end of calendar 2005, for a total of 90 Clicks pharmacies across the country. This was in line with its previous projections, but it did depend on the pace of granting of pharmacy licenses by the government.
Honneysett said the license approvals had been coming through “fairly regularly”, although there had been delays recently due to the Easter holidays and other considerations. Pending pharmacy openings included those in the Clicks stores at the Golden Acre and V&A Waterfront in Cape Town.
All 37 of the group’s Clicks-branded pharmacies had adopted the new dispensing fee regulations, as had the Hyperpharm pharmacies in Gauteng, he noted. All of the remaining pharmacies under the Purchase Milton & Associates banner and Hyperpharm stores would soon be either sold or converted to the Clicks brand as well, in order to give the group one united brand countrywide.
In Thursday’s interim results, New Clicks reported a 16,8% fall in its diluted headline earnings per share (HEPS) for the six months to end-February 2005 to 37,6 cents from 45,2 cents a year earlier. The group declared an interim distribution of 11,2 cents, compared to 12,5 cents at the interim stage in 2004.
The results were in line with the company’s recent trading statement and thus not unexpected by the market. New Clicks shares were unmoved and untraded following the announcement, last quoted on the JSE Securities Exchange at R7,50 as investors took time to digest the details of the information. ‒ I-Net Bridge