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Mr Price, Spar boost profits in tough market

Retailer Mr Price boosted first-half profit by 11% as its low-cost clothes helped it grab market share in tough conditions, lifting its shares.

Mr Price said diluted headline earnings per share for the six months to end-September rose 11% to 86 cents, while retail sales rose 18,6% to R3,9-billion.

The company said its low-cost product offering helped it increase market share during ”some of the most challenging” months on record as higher inflation and interest rates forced consumers to tighten their belts.

It said it was braced for similar conditions in the second half but would increase earnings assuming there is no marked deterioration in consumer spending.

Mr Price shares, which were briefly suspended on Wednesday due to a technical problem with distributing the results on the JSE news service, gained as much as 4 percent on the results, and traded 1,54% higher at 9.14am GMT, outpacing a slightly weaker Johannesburg all-share index.

Retailers in Africa’s biggest economy have been battling lacklustre consumer spending and are braced for one of the grimmest Christmases in years.

Retail sales nationwide fell 5% year-on-year in September after posting their biggest drop in a decade the previous month, and fashion retailers Truworths and Foschini have both forecast tough times ahead.

”There is little question that South African consumers are cash-strapped,” CEO Alastair McArthur said in a statement.

The core Mr Price clothing chain increased sales by 19,3% to R2-billion. But stripping out the impact of new stores, sales rose 15,3% — barely outpacing inflation of 13% in September.

”Clearly retailers are struggling, but the results are a bit better than I expected, particularly on the clothing side where they seem to be gaining market share,” said Abri du Plessis, chief investment officer at Gryphon Asset Management.

The homeware division had a tougher time, with comparable sales down 1,6%.

Grocery chains tend to hold up better during economic downturns and Spar reported a 29,9% rise in headline EPS, at the top end of its own forecast, on Wednesday. It said it would manage a ”satisfactory level” of earnings growth in 2009.

Shares in Spar dipped slightly in line with the market.

Mr Price, which is predominantly a cash business, said it cut bad debts net of recoveries to 7,1% of debtors balances from 8,6%. – Reuters

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Rebecca Harrison
Guest Author

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