Wrap Text
Trading update for the 20 weeks ended 15 August 2020 and trading statement for the 6 months ending 26 September 2020
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
("group" or "company")
TRADING UPDATE FOR THE 20 WEEKS ENDED 15 AUGUST 2020 AND TRADING
STATEMENT FOR THE 6 MONTHS ENDING 26 SEPTEMBER 2020
Trading update
The material disruptions stemming from COVID-19 had a significant
impact on the group’s trading performance in the first 20 weeks
from 29 March to 15 August 2020 (the "Period") of the financial
year ending 3 April 2021 ("FY21"). Despite this, performance
exceeded internal expectations and the group has gained market
share for four months in a row to June 2020, the latest period for
which RLC data is available. The group’s rolling annual market
share at the end of June 2020 was at its highest level in the last
fourteen months. This is a strong signal that its everyday low
price and fashion-value model has enabled customers to find value
despite the extremely challenging economic environment.
Retail sales of R6.2bn in corporate owned stores performed against
the corresponding 20-week period to 15 August 2019 (“Corresponding
Period”) as follows:
Total Comparable Units RSP
sales Store sales sold Inflation
Apparel Segment -22.2% -23.8% -25.4% 4.4%
Home Segment -15.0% -16.0% -17.4% 2.6%
Group* -19.2% -20.6% -23.3% 5.4%
*Includes Cellular (handsets and accessories)
As previously communicated on the Stock Exchange News Service
("SENS") on 25 June 2020, all the group’s South African stores
were closed for the month of April 2020 which resulted in retail
sales decreasing 89.9% on the Corresponding Period. Following the
lifting of the COVID-19 level 5 lockdown restrictions, in the
period May to 15 August 2020 ("Post Lockdown") a high level of pent-
up consumer demand was initially experienced. Retail sales Post
Lockdown grew 5.4% (RSA 6.0%) despite restrictions on the range of
merchandise permitted to be sold in both the apparel and home
segments.
Sales growth slowed significantly in the last week of June 2020,
impacted by base effects relating to pay-day timing and school
holidays. As anticipated, retail sales during July 2020 continued
to slow as pent-up demand subsided, particularly in the apparel
segment. Some stock shortages were experienced as a result of
certain categories trading ahead of expectations. In the first two
weeks of August 2020, inventory service levels increased and the
group reported double digit sales growth.
Customers continue to favour cash as a tender type ahead of credit.
Post Lockdown cash sales were up 8.9%, constituting 86.2% of total
sales. Credit sales decreased 12.3%.
Group online sales Post Lockdown were up 75.0% with average weekly
sales above the levels reported in the week of Black Friday in
2019. The group’s early investment into this channel has allowed
it to respond swiftly to the increased e-commerce adoption by
consumers.
All divisions have experienced smaller convenience store locations
outperforming major regional shopping nodes. Regional retail sales
performance has correlated with COVID-19 infections, with the Western
Cape and Gauteng most severely impacted over the Period. Historically,
Gauteng makes the largest contribution to group sales.
The group’s largest division, Mr Price Apparel, having effectively
managed stock flow during the level 5 lockdown period, subsequently
responded swiftly to over-trading categories, utilising its strong
supply chain network. While not all the sales opportunities could
be realised, performance exceeded expectations.
Mr Price Sport experienced high demand for fitness and equipment
categories after the initial lockdown period. The division’s
performance has been negatively affected by restrictions on school
activities and team sports, as well as gym closures.
Miladys’ more mature and conservative customer is avoiding
regional shopping centres, which has impacted sales. Given its
higher proportion of credit sales, this division is more affected
by the general slowdown in the credit environment than the other
divisions.
The Home segment is following global trends of increased spend due
to a shift to work from home and customers wanting to update their
living spaces.
Cellular (handsets and accessories) recorded growth of 49.7% in
the Period and are now available online, adding further opportunity
for growth.
Divisional performance breakdown:
Apr’20* May – 21 Jun- Post The
20 Jun’20* 15 Aug’20 Lockdown Period
Mr Price Apparel -88.7% 15.8% -6.5% 4.2% -19.7%
Mr Price Sport -90.2% 7.9% -13.1% -3.3% -26.4%
Miladys -94.7% -13.7% -21.6% -17.6% -37.8%
Apparel Segment -89.5% 11.8% -8.6% 1.2% -22.2%
Mr Price Home -92.4% 1.1% 14.3% 8.3% -17.5%
Sheet Street -90.5% 15.2% 21.2% 18.4% -9.4%
Home Segment -91.8% 5.4% 16.4% 11.4% -15.0%
Group# -89.9% 12.0% -0.4% 5.4% -19.2%
*Previously reported on SENS on 25 June 2020
#Includes Cellular (handsets and accessories)
The group is satisfied with the ongoing improvements in its
merchandise assortment and sold more full priced items due to lower
markdowns, which contributed to its GP% being in line with the
Corresponding Period. At the end of the Period, the group had low
terminal winter inventory and is targeting double-digit negative
stock growth by the end of H1 FY21.
Other income, excluding Cellular (handsets and accessories), is
reported to 1 August 2020 due to the debtors’ book cut-off date and
decreased 13.1% to R329m. Debtors interest and fees decreased by
9.9% to R151.1m, adversely affected by declining consumer credit
health and the cumulative 300bps repo rate cuts since January 2020.
The group believes that its historically prudent credit granting
approach will benefit it during an expected prolonged period of
credit weakness. Collections as a percentage of debtors’ book are
down 8.7% on the Corresponding Period. However, focused collection
strategies have resulted in collections improving each month since
the level 5 lockdown and, in July 2020, were marginally ahead of
the Corresponding Period.
Equity raise
At the general meeting of the company’s shareholders held on 29
June 2020, all the resolutions in the notice of general meeting
attached to the circular dated 20 May 2020 regarding authority for
a specific issue of shares for cash were passed. The purpose of
the proposed equity raise was to strengthen the balance sheet in
anticipation of extended COVID-19 lockdowns and resulting trade
weakness, as well as to take advantage of opportunistic
acquisitions. The group has six months to exercise the authority
to raise equity up to the value of 10% of its issued ordinary
shares. Fortunately, the group’s balance sheet has recovered well
from the initial impact of the level 5 lockdown. While the group
continues to evaluate potential acquisitions, at this stage no
specific targets have met its strict criteria (including
appropriate valuations that comprehend the difficult forward
trading environment). Consequently, the group has no immediate
intention to action the equity raise.
Outlook
Consumer health is anticipated to worsen as various government
assistance measures come to an end over the coming months.
Disposable income levels will weaken further as mortgage holidays
end, emergency savings are depleted, unemployment grows and low to
no wage inflation takes effect. In Q2 2020, the BER Business and
Consumer Confidence Indices were at their lowest levels in 35
years. This signals that the economic and consumer environments
are likely to be very challenging for the next 12 to 18 months.
Management’s focus is on dealing with the extreme volatility that
is likely to continue for the rest of FY21. Erratic sales trends
make forecasting challenging and the impact of the recent move
into level 2 lockdown adds further uncertainty. Inventory sell off
management remains key in order to avoid excessive markdowns and
resultant margin pressure. The exchange rate will become a growing
concern for the rest of the financial year and, while the group’s
hedging policy is effective, margins will be put under pressure in
H2 FY20. Managing this impact and carefully considering the ability
of an already constrained consumer to absorb inflation will be a
key balance to strike during the remainder of FY21.
Consumers will be highly constrained and seeking value and the
group will endeavor to further entrench its reputation as ‘the
people’s value champion’. The group’s fashion-value business model
has proven resilient through COVID-19 thus far and it believes
that it is positioned favourably to capitalise on current retail
trends as well as continue to capture market share in the long
term. As a predominantly cash retailer, the group is well-
positioned to benefit in an environment where consumer credit is
restricted.
The group’s healthy balance sheet, combined with supplementary
funding in the form of debt and/or equity if required, provides
the necessary liquidity to pursue growth opportunities. Organic
growth opportunities are being pursued, including the launch of
several new merchandise categories in H2 FY21.
Trading statement
As per paragraph 3.4(b)of the JSE Limited Listings Requirements,
shareholders are advised that the group’s interim financial
results for the six months ending 26 September 2020 are likely to
be at least 20% lower than those reported for the six months ended
28 September 2019, as follows:
Reported interim Expected minimum
28/09/2019 difference
26/09/2020
cents cents %
Basic earnings per share 443.6 -88.7 -20.0
Basic headline earnings
per share 443.2 -88.6 -20.0
Diluted earnings per share 436.3 -87.3 -20.0
Diluted headline earnings
per share 435.9 -87.2 -20.0
There are six weeks of the 26-week H1 FY21 trading period
remaining. Further guidance will be provided when management has
a reasonable degree of certainty over the expected earnings numbers
and prior to the release of the interim financial results ending
26 September 2020, which is expected to be on 26 November 2020.
The forecast financial information on which this trading update
and trading statement is based has not been reviewed and reported
on by the company’s external auditors.
Durban
20 August 2020
Sponsor:
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 20-08-2020 07:05:00
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