| Wed 14 Nov 2007, 8:01 | | MPC - Mr Price Group performs well in softer tradi |
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MPC
MPC
MPC - Mr Price Group performs well in softer trading climate
Mr Price Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1933/004418/06)
ISIN: ZAE000026951
Share Code: MPC
("Mr Price Group" or "the group")
MR PRICE GROUP PERFORMS WELL IN SOFTER TRADING CLIMATE
Focus remains on long-term growth strategy
(Johannesburg, Wednesday 14 November 2007) Value retailer Mr Price Group
announced its trading results for the first half of its financial year with
operating profits up 25% and earnings per share up 20% in what the retailer has
termed `a softer` trading environment.
Retail sales grew by 22% to R3.3 billion, with comparable sales growing by
11.3%. The cumulative effect of seven interest rate increases, the introduction
of the National Credit Act and material price increases in food and fuel all had
an impact on consumer confidence and spending. This resulted in a slowing in
retail sales growths from June onwards.
Operating profit increased by 25.2% to R261.3 million, with the group operating
margin up from 7.8% to 8.0% of sales. Headline earnings per share grew by 20% to
81.6 cents per share. An interim dividend of 36.5 cents per share was declared,
reflecting an increase of 20% over the comparable period.
Mr Price Group CEO, Alastair McArthur said that he was satisfied with these
results in a softer trading climate. "Our Apparel chains (Mr Price, Miladys and
Mr Price Sport), which constitute the lion`s share of our business, performed
really well and ahead of expectation, with sales up by 24% and profits up by
47%."
The Home chains, comprising Mr Price Home and Sheet Street, experienced slower
sales growth as consumers of home goods - many of them with higher interest
payments on home loans - began to cut back on spending. Sales in this division
were up by 17% but profits down 42%. Margin and profits in the Home chains
would have been more in line with the previous year but for abnormal charges,
which impacted profitability. These charges, which totalled R27.4 million,
largely related to start-up losses in the furniture operation, establishment
costs of a new Mr Price Kids concept, as well as changes in the allocation of
transport costs between divisions.
The growth in credit accounts has slowed, particularly after the introduction of
the National Credit Act in June 2007, while the contribution of cash sales
remained steady at 86%. "Our bad debts have increased as anticipated following
the introduction of new accounts into the former cash chains and given the
current economic climate. Net bad debt, which includes the costs of recovery,
increased to 5.1% of credit sales, with the debtors book remaining adequately
provided for. While the group will remain predominantly a cash retailer, there
are opportunities to further grow market share and profits through private label
credit cards and related financial services", said McArthur.
Mr Price Sport continued to roll out stores to achieve critical mass. "Mr Price
Sport is only a year old and achieved sales of R82 million in the half year,"
said McArthur. "We expect it to achieve sales of approximately R300 million
for the year and we will be opening a further 11 Mr Price Sport stores before
Christmas, bringing the total to 23."
McArthur said that there were three exciting new growth opportunities which were
currently being pursued.
The Mr Price chain recently opened four `Express` concept stores which would
ensure further market penetration by trading in locations where the group did
not currently have stores. "We have identified 70 new locations and also plan to
convert 60 existing Mr Price Stores in similar small town locations to this new
format. These stores would typically be less than 500 square
metres and fixturing, would cost up to 40% less. Rentals in these locations were
also significantly lower, often running at four times less than major shopping
centres".
Miladys tested a stand-alone Rene Taylor store concept which caters for the
fuller-figured woman. The first store was successfully launched in Pretoria in
August and a second store was opened in October in Somerset Mall in the Cape. It
is anticipated that further stores will follow across the country.
McArthur added that the group would also be opening four Mr Price Kids stand-
alone stores before Christmas. The concept has been tested in the 6 000 square
metre superstores. The merchandise offer is a unique combination of bed linen
and soft furnishings, home decor, furniture, early learning and educational
toys, apparel and accessories, all at low prices and targeted at the kids and
baby market.
"Our newer businesses are investments for tomorrow. While initially they do not
contribute to profits and have start-up losses, they will help us in future
years to maintain our 21 year annual compound growth in headline earnings per
share of 23%."
The group also opened the first Mr Price Home franchise store in Nairobi, Kenya,
at the end of October which is trading well ahead of expectations. The two Mr
Price franchise clothing stores in Zambia and Mozambique continued to perform
well, confirming the group`s view of the profit potential of franchising its
brands in Africa and elsewhere.
The Mr Price balance sheet remained sound with cash of over R500 million. This
would allow the group to maintain its expansion strategy, which would not be
slowed despite the tougher trading climate.
"We remain committed to our space expansion strategy", said McArthur. "We
commenced our expansion strategy in the midst of the downturn five years ago and
we benefited from the extra space over the last three years of good trading. We
are again planning for strong long-term growth in the South African economy."
"We plan to invest more than R1.5 billion in the growth of our business over the
next five years. While this means a lot of new stores, it also means a lot of
new jobs." He added that the group had created approximately 5 000 new jobs over
the last five years and would create a further 8 000 new positions over the next
five years over and above those created at local manufacturers and suppliers.
McArthur said the cumulative effect of interest rates increasing by a third had
still to be fully felt.
"The evidence from current retail sales, including car sales, clearly shows that
the consumer is hurting. Customer confidence is somewhat fragile after the spate
of interest rate changes and it is going to make this Christmas a particularly
challenging trading period especially given the high trading base that has built
up over the last few years. Fortunately, our business has historically been
less affected than the credit retailers in downturns. In fact, we often
experience a positive movement of customers to our stores when their credit is
curtailed by other retailers."
Looking to the year end, he said the group was again expecting real growth in
earnings for the year. "Our predominantly cash value retailing model and limited
exposure to retail credit should result in Mr Price being able to weather the
slower growth in consumer spending better than most," McArthur concluded.
ENDS
For further information, please contact Dominique van Onselen at 082 802 8184.
Date: 14/11/2007 08:01:01 Produced by the JSE SENS Department.
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