Wrap Text
Mr Price Group Limited reviewed final results for the 52 weeks ended 28 March 2020 and trading update
MR PRICE GROUP LIMITED
Registration number 1933/004418/06
Incorporated in the Republic of South Africa
ISIN: ZAE 000200457
LEI number: 378900D3417C35C5D733
JSE and A2X share code: MRP
("Mr Price" or "the company" or "the group")
MR PRICE GROUP LIMITED REVIEWED FINAL RESULTS FOR THE 52 WEEKS ENDED
28 MARCH 2020 AND TRADING UPDATE
This short-form announcement is the responsibility of the Mr Price
Group Limited board of directors and is a summary of the information
in the detailed results announcement available on:
https://senspdf.jse.co.za/documents/2020/JSE/ISSE/MRPE/25062020.pdf
and https://www.mrpricegroup.com and does not contain full or
complete details. These documents and the results presentation to the
investment community are available on the group's website at
www.mrpricegroup.com and copies may be requested from the company
secretary (jcheadle@mrpg.com or +27 31 310 8000) at the company's
registered office. Any investment decision in relation to the
company's shares should be based on the full announcement.
PRESS RELEASE
Mr Price today released its annual results in which it reported
improved sales momentum and market share growth in H2 and a strong
performance post the COVID-19 lockdown.
Due to the COVID-19 pandemic, a national state of disaster was
announced by government on 15 March 2020 and a national lockdown was
implemented from 27 March 2020 until 30 April 2020. The enforcement
of the lockdown period has been guided by varying levels of
restrictions in order to encourage social distancing and to slow the
spread of the virus, which has created unprecedented operational
disruption and significant uncertainty. The group has taken
additional impairment provisions on stock, its debtors' book and
insurance claims. Its associates and stakeholders have worked
tirelessly to minimise the impact on performance and to safeguard the
future of the business.
Financial performance
Annual basic earnings per share decreased 9.5% to 1 042.4c, headline
earnings per share (HEPS) declined 10.4% to 1 047.0c and diluted HEPS
decreased 9.9% to 1 029.4c. Excluding the additional COVID-19
provisions detailed above and the effects of the transition to IFRS
16, the adjusted normalised diluted headline earnings per share
decreased by 4.6% to 1 089.3c. On this same basis, H2 diluted HEPS
of 641.8c were 2.7% lower than the corresponding period last year, a
meaningful improvement on H1 despite the disruption in the last 2
weeks of trade.
Total revenue from continuing operations (discontinued operations in
Poland and Australia) grew 2.1% to R23.0bn with retail sales
increasing by 1.5% (comparable stores -1.4%) to R21.2bn. Cash sales
including cellular grew by 2.4% and constitute 84.3% of total sales.
Annual retail sales excluding the last two weeks of March 2020 grew
2.7%. In H2 sales grew 3.7% (Q3 +3.5% and Q4 excluding the last two
weeks of March 2020 +4.2%) and market share increased by 0.2%, led
by its largest division Mr Price Apparel, whose previously stated
turnaround initiatives gained traction. This improved performance was
achieved in a highly promotional trading environment which was
further disrupted by regular electricity load shedding throughout
most of the period. In its COVID-19 update issued through the Stock
Exchange News Service (SENS) on 26 March 2020, the group reported
sales growth of 8.6% in the first two weeks of March 2020, however
in the last two weeks, following the announcement of the national
lockdown on 15 March 2020, sales growth declined 32.9% as consumers
prioritised essential items.
The group continues to grow its footprint and opened 71 new stores
and expanded 16. After closing 16 stores and reducing the size of 28,
total weighted average space was up 2.2%, taking total corporate
owned stores to 1 378. New store capex was allocated mainly to micro,
small and medium formats aiding group store growth of 4.2%. This
supports the group's high trading densities and positions its store
network favourably post COVID-19.
Merchandise GP% levels improved from 40.7% in H1 to 43.2% in H2. The
group raised an additional R83m stock provision to account for future
disruption from COVID-19, excluding which, the second half GP% was
maintained in line with the corresponding period last year. The annual
gross profit margin declined 170bps to 41.2%, as a consequence of H1
performance.
Selling and administration expenses were 2.8% lower. On a normalised
basis, excluding the transition to IFRS 16, total expenses increased
3.2% on last year. Profit from operating activities from continuing
operations was in line with the prior year at R4.0bn. The annual
operating margin decreased 40bps to 17.4% of retail sales and other
income (RSOI) and in H2 was maintained in line with the corresponding
period last year at 18.8%.
The Apparel segment increased RSOI by 1.2% to R15.8bn. Operating
profit from continuing operations decreased 4.6%, down 13.6% in H1
but recovered in H2, up 2.5%. The Home segment increased RSOI by 2.4%
to R5.4bn. Operating profit from continuing operations increased
10.6%. The Financial Services & Cellular segment reported revenue
growth of 8.1% to R1.6bn and an operating profit growth of 5.6%.
The group's balance sheet remains healthy, with net asset value per
share at 3 636c, an increase of 8.7% from the prior year. Cash and
cash equivalents rose to R4.7bn, of which R615m is not immediately
accessible, and a +/-R500m provisional tax payment was made after the
year end cut-off date. Plans to release the temporarily restricted
funds are well progressed. True to its model, the group continued to
be highly cash generative, reporting a free cashflow conversion ratio
(adjusted for lease payments) of 133.3%. Inventory levels were up
3.7%, well within the targeted single digit range, which enabled the
group to enter the lockdown period in a better position to manage the
order book effectively. Heightened promotional activity is
anticipated as competitors liquidate stock. Due to this future
uncertainty and further potential disruption, the inventory provision
was increased to 9.6%, up from 6.6% in the prior year. The total
debtors' book was 5.2% higher and remains well managed, with a net
bad debt to book ratio of 6.3%. Anticipated consumer distress has
resulted in the group increasing its impairment provision from 7.5%
at the half year to 10.4% at year end. Historically, the group has
applied strict credit granting criteria to new and existing customers
which will continue to be reinforced.
Post Year End Trading update – 7 weeks from 1 April to 20 June 2020
In the month of April 2020, all the group's South African stores were
closed and retail sales were down 89.1% off a base of R1.9bn in April
2019.
Following the relaxation of lockdown restrictions to level 4 from 1
May 2020, high levels of pent up consumer demand were experienced.
Retail sales for the period 1 May 2020 – 20 June 2020 were up 12.0%
(Mr Price Apparel +16.1%, Mr Price Sport +7.7%, Miladys -13.8%, Mr
Price Home +1.3% and Sheet Street +15.2%). Pent up demand for apparel
in May shifted to homewares in June, as lockdown restrictions on
merchandise permitted to be sold were fully lifted.
Consumers continue to favour transacting in cash. In May and June
combined, cash sales increased 16.7% while credit sales declined
9.4%. The group anticipates that the credit landscape will
deteriorate further positioning it well to capture market share. Cash
sales contributed 85.6% of total sales in comparison to 82.2% in the
prior year.
Various factors over this period have led to unusually high levels
of consumer demand: the need for winter & kids' merchandise, increased
SASSA grant payments, debt payment holidays, TERS claims and
constrained spending under restriction level 4 and 5. Negative GDP
and retail sales growth outlooks (together with rising unemployment)
is providing caution that current sales growth levels may be
temporary. Therefore, the order book remains carefully managed and
stock is expected to decrease by double digits level by the end of
H1. The group's diversified supply chain strategy will enable it to
buy into stock, should trading conditions improve.
Online sales grew strongly and were up 90.1% over the period. Mr
Price Apparel & Mr Price Sport sales growth exceeded 100%. It is
still to be seen whether this is a permanent step change in consumer
behaviour. The group's historic and ongoing investment into its omni-
channel offering has positioned it to take advantage of this trend.
In addition to the changing online consumer behaviour, a shift in
store location has been notable. Super regional centres lagged
smaller formats due to reduced trading hours and customers preferring
to shop at more convenient locations. The combination of strong online
sales and store locations which support customer's needs positions
the group well as a leading omni-channel retailer in this changing
landscape.
As is common with the rest of the retail sector, a high proportion
of credit account payments are made in store. Therefore, closure of
the store base materially impacted collections during lockdown and
although the monthly trend is improving, they were lower than the
prior year in May and June combined.
COVID-19
The current and forecast spread of the virus in South Africa remains
a concern given its impact on society due to loss of life and the
devastating financial impact on businesses and citizens. It is not
possible at this stage to quantify the economic impact on the group,
but ongoing operational disruptions and future uncertainty remain
significant challenges.
The group anticipates an extremely constrained consumer environment.
As a result, approximately R300m in budgeted expense reduction has
been identified as part of group wide austerity activities and cash
preservation initiatives have been undertaken, including a 23%
reduction in budgeted capex for FY2021. No final dividend has been
declared in order to preserve cash considering the uncertainty and
future potential disruption, resulting in a decrease in annual
dividends of 57.7%. The group experienced a decline in cash reserves
of approximately R2bn during the 5-week lockdown period. However, a
strong, cash-based performance since then has ensured that the
current financial position remains sound, with cash resources and a
debt-free balance sheet available to support current business
operations and future uncertainty.
Opportunities
Amid all the uncertainty, the group is fully focused on efficiency,
effectiveness, innovation and growth. The way in which the balance
sheet has historically been managed has put the group in this unique
position. Plans are well advanced in identifying organic growth
opportunities, which may be augmented by acquisitions. The group has
delivered consistently high returns to shareholders over time,
highlighted by its return on equity of 30.0%.
On 20 May 2020 the group announced on SENS its intent to affect a
capital raise of up to 10% of the company's ordinary issued shares,
at an appropriate point in time and as market conditions permit. The
board and management are of the view that anticipated market
conditions will allow strong companies to capitalise on growth
opportunities whilst maintaining financial flexibility. The group
needs to be well positioned to respond with speed and agility to
opportunities that may arise and seeks shareholders' support in its
growth ambitions.
Partnership
Through this period, the group's focus has been primarily directed
toward the safety of its associates and communicating with them
frequently. All associates have been paid in full and thanks must be
extended to them for the way in which they have pulled together,
taken decisive action and acted in line with the group's values.
Extensive safety measures have been implemented to protect customers
and the group is grateful for their ongoing support and understanding
during this very challenging time. The group's responsibilities
extend to a wide set of stakeholders and the way in which it engages
with each of them will shape its future. The test of any businesses'
values takes place not when trade is buoyant, but rather when it is
at its toughest, therefore partnership is a value that is required
now more than ever before. Consumers will continue to be constrained
and seek value and the group is confident that its robust cash-based,
fashion value model, and growth mindset, will enable it to gain
further market share and emerge from this crisis fit for growth.
ENDS
Durban
25 June 2020
Sponsor:
Rand Merchant Bank (a division of FirstRand Bank Limited)
Date: 25-06-2020 07:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.