Clicks forecasts higher earnings with growth strategy

Clicks Group plans to tap into a growing trend of self-medication and generics. (Reuters)

Clicks Group plans to tap into a growing trend of self-medication and generics. (Reuters)

Beauty and pharmaceutical retailer Clicks Group forecast higher earnings this year as the opening of 25 stores will help offset weak consumer spending.

Diluted earnings per share excluding one-time items will rise 8% to 12% in the year through August, the Cape Town-based company said in a statement on Thursday. EPS on that basis gained 10% to 157.4 cents in the six months through February as first-half sales rose 9.6% to R9.3-billion ($878-million), Clicks said.

The South African "consumer condition is stable," chief executive David Kneale said in a telephone interview. "It's not getting materially worse, nor is it getting better at any speed."

South African retail sales growth slowed to 2.2% in February, from 6.8% the previous month as rising unemployment and inflation curbs spending.

Clicks's volume growth was supported by discounting and promotions, which accounted for 26% of sales in the period. There will be increased discounting in the second half, the chief executive said.

Sensitive markets
"At the best of times health and beauty are promotional- sensitive markets and especially so as consumers seek value," Kneale said.

More than half of the 25 new stores were opened in the first six months, Kneale said.

Self-medication and an increasing use of generics are also trends that Kneale expects to continue. Private label and other agreements, which provide higher margins, account for almost a fifth of Clicks's sales, he said.

Pharmacy sales were 13% higher and the company's retail pharmacy market share rose to 17.6%, from 16.6%, he said. Sales at UPD, the company's wholesale and distribution unit, will slow in the second half after rising 15% in the first, Kneale said.

The company said it's raising its interim dividend 10% to 53.5 cents per share. – Bloomberg

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