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Mr Price growth strategy ‘working well’

South African retailer Mr Price on Thursday reported a 48% rise in diluted headline earnings per share to 154,7 cents for the year ended March from 104,7 cents a year ago. A total distribution of 81 cents per share — based on a cover of two times — was declared, up from 60 cents last year.

The group exceeded the R5-billion sales mark for the first time, with revenue up 14% to R5,285-billion, while operating profit grew by 53% to R534-million.

The group is to invest R1-billion in new stores, concepts, expansions and revamps over the next five years, it said.

CEO Alastair McArthur said there has been strong growth in consumer spending in South Africa over the past few years and the Mr Price Group, having launched its expansion strategy four years ago, has been well positioned to meet this growing demand.

The four retail chains — Mr Price, Mr Price Home, Miladys and Sheet Street — all showed strong improvements in profitability during the year under review. This performance had more than compensated for the loss of profit contribution from the non-core Hub and Galaxy chains, which were sold during the year.

McArthur said cash retailers are now benefiting fully from the trading conditions that initially favoured credit-oriented chains.

“Notwithstanding the introduction of credit into our three cash chains, we remain a predominantly cash retailer with cash comprising 89% of sales. Our forecasts indicate that even with the roll-out of credit in the cash businesses, the majority of sales will remain on a cash basis.”

Revenue for the comparable 52-week period was 22% higher, with comparable sales growing by 15%. Operating margins increased in all retail chains, with the group growing its operating margin for the 52 weeks to 10,2%, a target that had originally been set for the 2007 financial year.

During the past year, the group sold its non-core operations — The Hub and Galaxy — and made accounting restatements in relation to participation in export partnerships in terms of IFRS, which made comparisons with the previous year difficult.

The Mr Price chain lifted sales on a like-for-like period by 17% to R2,6-billion, with comparable sales 14,6% higher. Improvements in merchandise assortments and delivery, coupled with excellent fashion interpretations, resulted in a strong profit performance. This positive performance had continued into the new financial year.

Miladys retail sales — like-for-like period — were 21% higher at R760-million with comparable sales growth of 14,8%. The store revamp programme had proved extremely successful with renovated stores recording a marked improvement in sales levels and branch profitability.

Mr Price Home grew comparable period retail sales by 28% to R1,1-billion with comparable sales being 14,8% higher. The recently opened ultra stores — all larger than 2 500 square metres and carrying a wider assortment of furniture — proved to be very successful.

Sheet Street increased same-period retail sales by 37% to R460-million and comparable sales were 16,7% higher and showed a strong profit improvement. The chain opened 38 stores and closed five during the year.

Looking at the profit performance of the two business segments, McArthur said that operating profits from the apparel chains grew by 41% while that of the home chains increased by an excellent 72%.

“Our home chains, which are younger businesses, are now getting into their stride and I am really pleased with their results. The apparel result is also very good given their higher base and the competitive arena in which they trade.”

McArthur said the group’s balance sheet remains strong with cash resources of R625-million, which together with future cash flows will allow the group to continue its expansion programme.

“Our growth strategy is working well. Our customers have responded strongly to the updated and enlarged stores which allow enhanced assortments, better product presentations and a more comfortable shopping experience, resulting in more profitable stores. We are planning to extend the strategy and will invest more than R1-billion in new stores, expansions, revamps and new concepts over the next five years,” he said.

“This will create another 4 000 new jobs in the company.”

McArthur said the testing of credit in Mr Price, Mr Price Home and Sheet Street throughout KwaZulu-Natal and the Eastern Cape, and more recently the Western Cape, has been positive, with the rise in average basket size driving additional sales. A national roll-out has now started, expected to be completed within the first half of the new financial year.

McArthur said the credit-testing initiative will counter any softening in consumer spending that might occur. He added that credit is tightly controlled in the group with bad debts at 1,1% of credit sales and 2,6% of the debtors’ book over the past financial year.

Looking forward, McArthur said trading in April and May has been good. Prospects for the group for the coming year are positive and another year of earnings growth is anticipated.

“We have very exciting and innovative plans for the next few years and we remain committed to our 2010 targets of sales of R10-billion with an operating margin of over 10%,” he said.

“The group’s compound annual growth in earnings per share over the past 20 years has been 24%. Our plan is to try and maintain that fine track record in the years ahead.” — I-Net Bridge

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