| Wed 11 Nov 2009, 8:01 | | MPC - Mr Price Group Limited - Mr Price Turns In Strong Results In Worst |
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MPC
MPC
MPC - Mr Price Group Limited - Mr Price Turns In Strong Results In Worst
Recession In Decades
MR PRICE GROUP LIMITED
Registration number 1933/004418/06
Incorporated in the Republic of South Africa
ISIN: ZAE 000026951
JSE share code: MPC
("Mr Price" or "the company" or "the group")
MR PRICE TURNS IN STRONG RESULTS IN WORST RECESSION IN DECADES
Profit from operating activities up 14.0%; operating margin up to 8.0% of
retail sales
HEPS up 15.1%; interim dividend up 14.9%
Market share gains
Durban, 11 November 2009 - Notwithstanding the global recession and the tough
domestic trading environment, value retailer Mr Price today announced a strong
set of interim results with improvements in sales, operating margin, earnings
per share, dividends and cash generation. This substantiates the value
retailing proposition followed by the group since inception, and the fact that
a focus on cash with a tightly managed credit facility would pay dividends in
any business cycle.
The group`s retail sales for the six months ended 30 September 2009 grew by
10.8% to R4.3 billion. This is in contrast to Stats SA reports of sales
growth in the textiles, clothing and footwear sector of 3.2% and drop of 5.2%
in household furniture and appliances over the five month period to August.
Comparable group sales, which include sales of expanded and relocated stores
in like-for-like locations, were up 9.2%. These sales were achieved off an
increase in gross inventories of only 2.2%, aided by the continued progress
being made by Project Redgold, an initiative aimed at enhancing supply chain
and merchandise processes. Through the fashion value appeal of its
merchandise, the group has continued to gain market share, as measured by the
Retailers` Liaison Committee.
The group increased its net weighted average trading space by 6.1% during the
period and closed with 951 stores.
CEO and Deputy Chairman, Alastair McArthur said "This has been the toughest
trading period in decades and the group has proved extremely resilient to a
poorly performing economy by showing that it does well in both good and bad
trading conditions."
Profit from operating activities increased by 14.0% and the operating margin
increased from 7.7% to 8.0% of retail sales. Headline earnings per share
increased by 15.1% to 101.5 cents. Core headline earnings per share, which
exclude the impact of the company`s participation in export partnerships,
increased by 16.8%. The interim dividend has been set at 46.2 cents per share
which reflects an increase of 14.9% over the comparable period and is based on
a maintained interim cover of 2.2 times.
The Apparel chains (Mr Price, Miladys and Mr Price Sport), which constitute
71.3% of group sales, grew sales by 15.1% to R3.0 billion and comparable sales
were up 11.7%. Operating profits increased by 19.1% to R385.2 million and the
operating margin increased from 12.2% of retail sales in the comparable period
to 12.6%.
Mr Price grew sales by 20.3% to R2.4 billion on an increase in weighted
average trading space of 6.9%. Comparable sales were 17.9% higher. The
division`s merchandise strategy, aided by sophisticated IT capabilities,
enabled it to continue the trend of achieving growth in market share. The
number of units sold increased by 10.6% to 44.4 million. "That`s a superb
result in these times" said McArthur, "and we are confident that as we spread
the sophistication and experience from this major chain to our other
businesses, it will improve group operating margins".
Miladys sales decreased by 5.9% to R471.9 million. "While the trading
environment inhibited sales, customers resisted the winter assortments which
were too basic and focused on price rather than fashion. These factors
combined led to a drop in units sold of 9.0%. "The necessary steps have been
taken to remedy this and an improved operating performance in the second half
is expected," said McArthur.
Mr Price Sport generated sales of R193.6 million, an increase of 17.1%. The
initiatives put in place last year to accelerate performance are proving
successful and during the period, the division exceeded its own financial and
operational targets. Independent market research commissioned in July 2009
highlighted that Mr Price Sport has the highest affinity amongst sport
retailers and the division ranked first in top-of-mind awareness, both of
which are significant milestones given the relative newness of the brand.
Sales in the Home chains (Mr Price Home and Sheet Street) were up 4.4% to R1.2
billion and comparable sales were up 3.6%. This segment continues to be the
most affected by the reduction in consumer spend on semi-durable products,
however both chains maintained market share. Operating profits declined to
R4.4 million and the operating margin reduced from 1.9% to 0.4% of retail
sales. "These divisions` performance will improve as the economy improves and
with a continued focus on value and innovation," said McArthur.
"The enormous benefits that Project Redgold has brought to Mr Price Apparel
will also positively impact the Home businesses. Having achieved critical mass
through rapid space expansion in recent years, space growth in these chains
will now slow down. The focus on improving trading densities and operational
efficiencies will ensure that we achieve our goal of double digit operating
profit margins in the home segment," McArthur added. "While it`s hardly
surprising that customers who are under financial pressure will delay a
purchase of say new curtaining or bedding, we see many ways in which our home
businesses can become less cyclical."
Mr Price Home generated sales of R834.4 million, an increase of 4.2% and
comparable sales were up 5.5%. Although the division maintained its gross
profit percentage, the performance of the division was negatively affected by
the drop in unit sales of 4.0%. Sheet Street increased sales by 4.7% to R384.0
million and comparable sales were down 0.5%. Profitability was impacted by
increased markdowns and a decrease in unit sales of 4.2%.
Mr Price International opened an additional four stores in the Mr Price and Mr
Price Home formats, bringing the total to 21. These test stores have to date
proved that there is strong demand for our merchandise. Extensive research and
planning is now underway that will enable us to enter selected markets with an
appropriate business model and with streamlined business and logistics
processes. "This is a strategically important part of the business and
represents a significant growth area for us," said McArthur. "We have tested
a number of markets across Africa and the demand is clearly there. Now we
need to focus on growing further in the best of those markets."
Cash generated from operating activities increased by 36.3% to R310.9 million
and cash resources rose to R635.2 million. "Our cash-driven business model,
whereby 82.6% of our sales were for cash, will enable us to retain a healthy
balance sheet and fund our growth as the economy turns."
McArthur said that although the debtors book has increased by 21.7% to R741.6
million, the group has continued with its cautious credit granting approach.
Annualised bad debts net of recoveries increased from 7.1% to 7.4% of debtors
and the provision for impairment has been conservatively set at 8.6% of the
book. Independent statistics confirm that the ageing profile of the debtors`
book continues to be the industry benchmark.
Gross inventories were well managed and the group stock turn improved from 5.4
times to 5.8 times during a challenging trading period.
McArthur said that the positive results in this environment had "a lot to do
with the hard work and dedication of the group`s almost 19 000 associates" and
it was significant that the group had continued to create new employment
opportunities during an economic recession, when many businesses were laying
off staff. "We are also delighted that during these cash-strapped times our
associates have benefited from the increased dividends that they receive from
the free shares that were awarded to them under the Partners Share Scheme"
said McArthur. "Our associates also stand to gain substantially from an
increased share price over time."
The reduction in interest rates of 500 basis points since December 2008, as
well as a decreasing inflation rate will contribute to easing the plight of
the South African consumer. "There will be a delayed impact for this to
materially increase consumer spending, and the tough trading climate is
expected to continue well into 2010" said McArthur. "However, the group is
well positioned to capture further market share with its fashionable products
at everyday low prices."
"Our confidence in the future is displayed by the group`s ongoing investments
in selective space growth, improved and updated store layouts and new
merchandise, logistics and integrated human resource systems" said McArthur.
"We will be mindful of the current poor trading environment while keeping our
eyes firmly on the future. We recognise that downturns are temporary.
Fortunately our company has a long track record of earnings growth through
both the positive and negative stages of the business cycle."
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Date: 11/11/2009 08:01:03 Produced by the JSE SENS Department.
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