It is more risky doing business in South America than in SA, says CEO Alastair McArthur
Industrial Reporter
CLOTHING retailer Mr Price has decided to end its ambitious venture into South America with the closure of its Chilean operation.
The group's strategy was to establish a base in Chile with six test stores and then expand into other countries in South America. Mr Price said that despite an improvement in the performance of these test stores, economic prospects in Chile and neighbouring countries had made the roll-out of stores a high-risk course of action.
An analyst said the economic troubles of the region were nothing new.
Mr Price CEO Alastair McArthur said the economy in Chile had worsened in December and it had ended up being more risky doing business in Chile than in SA. He said closure costs were not expected to be material and would not adversely affect headline earnings, as "closing the six stores in Chile was no different to closing six stores in Namibia".
Mr Price joint chairman Laurie Chiappini said the group would continue to research and test other international markets, including African countries.
Mr Price's results for the year to March were greeted with disappointment by the market. Although it increased turnover 19% to R3,6bn and pushed up net profit for the year 16% to R161,4m, the group's share price fell 3,52% to 521c.
The analyst said that while the group's earnings were in line with expectations, many players in the market were looking for a repeat of strong growth shown in the latest set of results published by its rival, Edcon.
While turnover for Mr Price showed a 19% rise, it was accompanied by an additional 72 stores being opened during the year.
The analyst said the rise in turnover was being measured against a similar rise in Edcon's turnover and it had reduced selling space over the past year. This meant Mr Price was selling more merchandise using more space, while its much larger rival Edcon was selling more merchandise using less space.
McArthur said if Edcon had picked up market share, it had not been at Mr Price's expense. He said that the first and second halves of this trading year had been marked by very different trading characteristics.
The retail liaison committee recorded turnover growth of 19% in the first half and much lower growth of 12% in the second half on its index.
The group said it had outperformed this index in both these periods with growth of 22% in the first half and 18% in the second half.
The effect of the earlier decline in the rand resulted in escalating inflation and higher interest rates.
Rand strength also knocked the group, as it incurred a R28,1m foreign exchange loss resulting from its Chilean operation. This was almost a direct reversal of the R21,7m foreign exchange gain in the past year. On its prospects, joint chairman Stewart Cohen said the trend of "tighter trading conditions experienced in the second half of last year was expected to continue well into the first half of the new financial year".
High interest rates and inflation were expected to continue to negatively affect consumer spending.
However, Cohen said two-thirds of the group's operating profits were earned in the second half of the year. He said the group's business formula and an overdue reduction in interest rates should result in further gains in market share and earnings growth for the year.
May 30 2003 07:25:15:000AM Larry Claasen Business Day 1st Edition
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