| Wed 28 May 2008, 8:01 | | MPC - Mr Price Group Limited - Good Results From Mr Price In Tougher Economic |
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MPC
MPC
MPC - Mr Price Group Limited - Good Results From Mr Price In Tougher Economic
Climate
MR PRICE GROUP LIMITED
Registration number 1933/004418/06
Incorporated in the Republic of South Africa
ISIN: ZAE000026951
JSE share code: MPC
GOOD RESULTS FROM MR PRICE IN TOUGHER ECONOMIC CLIMATE
(Cape Town, 28 May 2008) Value retailer, the Mr Price Group, today announced
positive year end results in a tougher trading climate. For the year ending
March 2008, retail sales were up by 19% to R7,2 billion and operating profit was
up by 17%, while diluted HEPS and the distribution to shareholders grew by 15%.
The group achieved a return on equity of 40%.
CEO Alastair McArthur said the group was able to weather the tougher conditions
because of its appeal as a value retailer and its predominantly cash formula.
"Our established apparel chains which represent the bulk of our business have
performed exceptionally. The home businesses have had more difficulty but are
adapting to the changed conditions. Our trading space reached half a million
square metres, we created nearly 700 new jobs during the year and our
franchising business has taken off very well."
Independent market research conducted during the year confirmed that Mr Price is
now the most loved clothing retailer in South Africa, while Mr Price Home was
voted the most loved homewares retailer. This supported the market share
statistics supplied by the Retailers` Liaison Committee which highlighted that
both the Apparel and Home divisions continued to increase their market share
during these difficult times. "This is powerful consumer recognition of the
relatively young Mr Price brand and confirms its strong appeal," said McArthur.
"The buoyant economic environment that has been enjoyed by retailers in recent
years has ended," McArthur said. Consumers have been hard hit by increases in
interest rates, food and fuel prices as well as property rates, all of which
have led to decreased spending, particularly on durable and semi-durable
products. The effect was more marked in the second half of the year.
Despite this, group profit from operating activities increased by 16,9% to
R716,2 million and diluted headline earnings per share increased by 14,8% to
210,8 cents per share. The final dividend was 79,5 cents per share, which brings
the total distribution for the year to 116,0 cents per share, with cover
maintained at 1,9 times.
The group`s operating margin decreased from 10,1% to 9,9% as a result of the
economic impact on the Home division. Further growth in operating margin was
inhibited by investments made in the new businesses of Kids, Furniture, Sport,
and Franchising.
"If the cost impact of these new developments is excluded, the operating margin
would have increased by a further 1,5% in the current year. However these new
investments are important for our future growth to maintain our compound annual
growth rate in HEPS of 23% over the past 22 years," said McArthur.
The Apparel division (Mr Price, Miladys and Mr Price Sport) delivered excellent
results, growing sales by 22% to R4,9 billion. Profits were up 32% to R670
million and the operating margin improved from 12,7% to 13,8% of sales.
The Mr Price chain grew sales by 19,7% to R3,7 billion and comparable sales were
16,2% higher. Excellent fashion interpretations led to a strong performance
across all departments. Project Redgold`s impact on merchandise systems and
processes also enhanced the profitability of the chain.
"We are thrilled with the success of the eight new Mr Price `express` stores,"
said McArthur. "This concept enables Mr Price to enter trading areas not
previously considered, through lower operating, capex and rental costs. We plan
to roll out many more such stores which are achieving the same operating margins
as our regular stores."
Miladys once again produced a solid set of trading results. Sales were 10,2%
higher at R945 million, with comparable sales growing 4,7%. The division opened
12 stores during the current financial year. The two stand-alone Rene Taylor
stores opened during the course of the year continued to produce excellent
trading results and the concept will be rolled out further in the new financial
year.
Mr Price Sport opened a further 15 stores in the current financial year. The
division now operates 23 stores and is approaching critical mass. Sales of R240
million were achieved from a weighted average trading space for the year of 22
396mSquared. This new chain will open a further eight stores before Christmas.
The Home division (Mr Price Home and Sheet Street) has been more affected by the
changes in spending patterns and recorded an increase in sales of 14% to R2,4
billion. "The operating margin was also impacted by the newer Furniture and Kids
departments, the changed allocation of distribution costs and duplicate charges
incurred while transitioning to a VOIP communication system. These factors
together with the softening in sales led to a drop in operating margin from 8,2%
to 5,0% of sales and profit fell by 31% to R118 million," said McArthur.
Mr Price Home grew sales by 12,9% to R1,6 billion. Comparable sales were 0,7%
lower than the previous year as a result of the impact of large new generation
stores being opened in close proximity to existing smaller stores. In addition,
the effect of changes in consumer spending patterns led to lower sales growth
and higher markdowns.
"The big Mr Price Home stores are more profitable and create a better shopping
experience," said McArthur. "Some of the smaller affected stores will be
converted to other concepts or closed, in line with the ongoing retail
evolutionary process and it is essential that we keep ahead by updating our
retail concepts in terms of store size and range of products carried."
Sheet Street increased sales by 15,0% to R736 million, with comparable sales
growth of 0,7%. The chain opened 26 new stores during the current financial
period. "Our initiatives to broaden the assortment to appeal to more customer
lifestyles, and to freshen our brand with a new store layout and wrap, have
resulted in an increased sales performance since January this year," said
McArthur.
The group increased its store numbers by 67 to 896 at year end, and gross
trading space surpassed the half a million m2 mark for the first time, finishing
the year on 517 547m2.
Mr Price Franchising successfully opened six stores in three African countries,
across the Mr Price, Mr Price Home and Sheet Street formats. "Sales have far
exceeded expectations, confirming our view of franchising being an exciting
growth strategy. A further 15 franchise stores are planned for the coming
financial year, including a test of the Mr Price Home format in the Middle
East," said McArthur
The debtor book increased by 20,5% to R542,3 million at year end. As a result
of the worsening economic climate and with the bulk of the book being relatively
immature following the rollout of credit in the cash chains last year, net bad
debts excluding collection costs increased to 8,6% of debtors. The provision
for bad debts has been set at 9,0% of debtors at year end. "Improved
collections, and not the growth of the debtor book, will be our priority," said
McArthur.
The group`s cash resources of R465,3 million, coupled with the cash flows
associated with being a predominantly cash retailer, are expected to finance
future growth plans. During the second half of the year, shares to the value of
R150,5 million were acquired by various staff share trusts in order to partly
cover options awarded.
"Over the past year we created nearly 700 new jobs and expect to employ a
similar number of new associates in the year ahead. We are particularly pleased
with the success of our Jump Start Project which targets matriculants from
disadvantaged communities who have been unable to find work for three years. The
project puts them through a self-esteem and motivational course followed by a
period of work experience in stores. Those who show aptitude are offered casual
and then permanent positions. A number of our new associates are entering the
company through the Jump Start route," he said.
Looking at prospects for the rest of the calendar year McArthur said, "We are
trading in difficult times, which are likely to get even tougher. We have still
to feel the cumulative effect of the interest rate and other pressures on
consumer spending. Under these economic circumstances, shoppers tend to seek
value and therefore, our group is well positioned to attract more customers with
our fashionable products at everyday low prices. Internationally value retailing
has proved to be the best formula for tough trading times and it will help us
prosper through the downturn."
He said that in the year under review the cash sales ratio had been maintained
at 84% and that therefore the group was not dependant upon credit sales to grow
revenues.
"Furthermore our Apparel division reflects 67% of our sales and 85% of our
profits and their excellent performance has continued into the new year.
Although we are exposed to the impact of reduced semi-durable purchases, the
Home division only represents one third of revenue," said McArthur.
The group is well placed to increase market share over the medium term and
expects to achieve growth in earnings in the forthcoming year notwithstanding
the challenging economic climate.
ENDS
For further information, please contact Tamra Veley on 083 251 3658 or Dominique
van Onselen on 082 802 8184.
Date: 28/05/2008 08:01:02 Produced by the JSE SENS Department.
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