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Mr Price Group Limited
Registration number 1933/004418/06)
Incorporated in the Republic of South Africa
ISIN: ZAE000200457
LEI number: 378900D3417C35C5D733
JSE and A2X share code: MRP
(Company or group)
TRADING UPDATE FOR THE 13 WEEKS ENDED 1 JULY 2023
During the first quarter from 2 April 2023 to 1 July 2023 (the
Period) of the financial year ending 30 March 2024 (FY2024), the
group recorded growth in retail sales and other income (RSOI) of
21.4% to R8.4bn. This performance includes the recently acquired
(effective 4 October 2022) Studio 88 Group (S88), excluding which
RSOI grew 1.2% to R7.0bn.
Operational background
Soft retail demand experienced by the sector during H2 of FY2023
continued into the first quarter of FY2024, aggravated by the
highest levels of loadshedding in the calendar year recorded in
April and May 2023. Consumers continued to be negatively impacted
by the rising cost of debt after the most recent interest rate
increases in March and May 2023. Cumulatively, interest rates
have increased 475 basis points since November 2021, now at their
highest level in 14 years.
Positively, headline CPI appears to be moderating with June 2023
CPI receding back within the targeted range. However, food and
public transport inflation, which index higher in low to middle
income household budgets, remains at double digit levels. These
cost pressures have not been sufficiently offset by nominal (+3.8%)
and real (-3.3%) wage growth, which recently fell to its lowest
level (outside of recessions) since 1994. These conditions are not
favorable for discretionary retail, placing considerable pressure
on household disposable income and indebtedness.
Performance summary
As experienced by the retail market in general the group's new
financial year got off to a slow start. April commenced with power
back-up in 60% of stores in the group's core business, and recorded
sales growth of 12.8% (excluding S88: -5.0%). Trading performance
improved as back-up power solutions were extended to all stores by
30 June 2023, with retail sales for May and June combined
increasing by 33.0% (excluding S88: 5.6%).
Retail sales for the group's corporate-owned stores was as follows:
FY2024 vs FY2023 Incl. S88 Excl. S88
Apparel segment 29.5% 1.2%
Home segment -1.7% NA
Telecoms segment 11.0% NA
Group 21.9% 0.9%
The commentary below relates to key group performance metrics
including S88 unless specifically mentioned.
Retail sales grew 21.9% to R8.1bn (comparable stores decreased
3.8%). Excluding S88 retail sales increased 0.9%. Other income
increased 8.8% to R293m as debtors' interest and fees increased
17.6% due to a higher average debtors' book and interest rates.
This was tempered by flat insurance revenue growth during the
Period.
South African retail sales grew 20.9% (excluding S88: 0.6%) to
R7.5bn while non-South African corporate-owned store sales
increased 35.9% (excluding S88: 4.4%) to R614m.
Total store sales increased 22.8% (excluding S88: 1.2%). Online
sales, which contributed 2.4% to retail sales, decreased 5.3%
(excluding S88: -7.5%, off a high base of 21.4% in the prior
period).
Group retail selling price (RSP) inflation of 13.8% was impacted
by the higher average retail selling price of S88. Excluding S88,
RSP inflation of 2.4% was tempered by higher markdowns, with the
retail sector remaining highly promotional as retailers continued
to clear excess inventory, compounded by the late onset of winter.
Total unit sales increased 6.8% (excluding S88: -1.5%).
The store footprint increased by 58 new stores and the group's
total footprint expanded to 2 756 stores. Trading space increased
22.6% on a weighted average basis and 28.7% on a closing basis
(excluding S88: weighted average 5.8%; closing 5.9%).
Cash sales which constitute 87.8% of total retail sales grew 26.4%
(excluding S88: 1.5%). Credit sales decreased 2.7% as the group
continue to enforce its strict credit granting criteria, limiting
new account growth as it continues to cautiously manage the
deteriorating credit environment.
Retail sales in the Apparel segment grew 29.5% (excluding S88:
1.2%). Retail sales and comparable store sales trends in the
group's largest division, Mr Price Apparel, improved each month as
the quarter progressed. Power Fashion and S88 continued to grow
retail sales by double digits, and both businesses reported
positive comparable store sales.
In the Home segment retail sales momentum improved from the double-
digit decline in the fourth quarter of FY2023 to a decrease of
1.7%, as performances in Mr Price Home and Sheet Street improved.
Yuppiechef continued to report double digit sales growth supported
by its omni-channel expansion.
The Telecoms segment remains robust, with sales in cellular
handsets and accessories up 11.0%. Cellular merchandise is now
trading in 484 stores, including 18 standalone stores, which
continue to report strong comparable store sales growth.
OUTLOOK
The growth outlook both globally and in South Africa for the
remainder of 2023 is likely to remain muted. Disposable income is
only anticipated to meaningfully improve during 2024, as inflation
moderates and interest rate relief is experienced by consumers.
Persistent and elevated loadshedding continues to be a drain on
growth and a hindrance to economic progress in South Africa.
Despite implementing back-up power solutions, concerns remain
regarding the resultant impacts these conditions are having on
small businesses, employment and changing shopping behaviour.
As recently communicated, the group's H1 performance is expected
to remain challenging. While management is satisfied with the
increased sales momentum achieved in July 2023 to date, H1 RSOI
growth above will not directly translate into gross and operating
profit growth due to the significant effects of:
- Higher markdowns than the prior period
- The inclusion of S88, which trades at lower gross margins
than the group, and whose sales, gross margin % and
earnings profiles are materially weighted to H2
- Significant impact of mix contribution by high growth
acquisitions which trade at lower gross margins than the
group's core business
An improved performance in H2 is expected (compared to H1 FY2024
and the corresponding H2 period), as elevated levels of
loadshedding will be fully in the base and the group now has back
up power in all its stores. Furthermore, inventory levels in the
group and retail sector should normalise.
Focus remains on increasing comparable store sales growth, and
responsible stock management (targeting low single digit inventory
growth by the end of H1 FY2024). The group will continue to
maximise the contribution from its acquisitions and is confident
that they will deliver on their strategic ambitions.
The above-mentioned figures and any information contained herein
do not constitute an earnings forecast or estimate and have not
been reviewed and reported on by the Company's external auditors.
Durban
21 July 2023
JSE Equity Sponsor and Corporate Broker
Investec Bank Limited
Date: 21-07-2023 07:05:00
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