Mr Price ‘well placed for future’
• Retailer increases debt facility as ‘head room’ expecting constrained sales
Homeware and clothing retailer Mr Price says it is well placed for the future as cash-strapped consumers shop for value, even as its profits fell in the year to end-March before the lockdown. CEO Mark Blair said the group expected weak sales in the future due to the end of the Temporary Employee/ Employer Relief Scheme in June, an expected increase in retrenchments, and a weaker consumer spending environment.
Homeware and clothing retailer Mr Price says it is well placed for the future as cash-strapped consumers shop for value, even as its profits fell in the year to endMarch before the lockdown.
CEO Mark Blair said the group expects weak sales in the future due to the end of the Temporary Employee/Employer Relief Scheme (Ters) in June, an expected increase in retrenchments, and a weaker consumer spending environment. He also expects competition from cheap clothing on the market as distressed competitors sell stock.
As a result, the company plans a double-digit reduction in how much inventory it will order and sell from September.
It has increased its debt facilities at banks from R500m to R1bn, even though, CFO Mark Stirton said, this is just a precaution. “It is head room. We don’t think we will need to access it.”
As it is currently debt-free and sells lower-priced homeware, clothing and shoes, Mr Price says it has a good business model in SA.
While the business focuses mostly on cash sales, Blair said new credit applications have had slightly higher value customers, suggesting that some new consumers may be choosing to shop at Mr Price instead of more expensive clothing retailers.
The company, which also owns Miladys and Sheet Street, released its annual results for the year ended March 28, a day after the lockdown started, which resulted in clothing stores and other sectors shutting down.
RIGHTS OFFER
Revenue increased just more than 2.1% to R29bn, but headline earnings per share fell 10.4% to 1,047c. Normalised headlines earnings per share, stripping out new lease accounting reporting requirements to reflect a more comparable figure, were down 7.8% a share to 1,053.3c.
The company will issue a rights offer of 10% of its ordinary shares, so that it has a stronger balance sheet in case good quality acquisitions come its way.
Its focus remains on value clothing and in expanding or growing organically in SA, where it “understands the market”, it said on Thursday.
It is closing its last store in Nigeria in 2020, with Blair saying he does not want to spend more time and money trading in such a “volatile” country. Mr Price is only interested in buying local companies with a “prudent” balance sheet and “a strong management team”, rather than companies in severe distress, Blair added.
The company does not foresee a “large, single acquisition” but said there is “likely to be several smaller opportunities with significant growth prospects”.
On Thursday Blair also announced that it is rebranding its MRP Home, MRP Sports and clothing stores. It will label clothing as the old brand of Mr Price, saying staff and customers still refer to the business as such, as it is a “trusted brand”.
The group had a tough first half of the 2019 financial year with excess stock and relied on sales and discounts to move unwanted stock due to poor fashion choices. It is refocused on cheaper, basic clothing rather than higher-end fashion.
Blair was asked in a virtual question and answer session with investors if he believes the company has put “poor fashion choices behind”. He responded: “We are feeling very confident ... I am exceptionally pleased with how it has come around.”
Cothing sales, except at Miladys, were better than expected in May when clothing stores reopened, Blair said. The spike was due to pent-up demand and a need for winter and children’s clothing. Homeware sales did well at the beginning of June.
While group sales were 12% higher from May to the middle of June, year-on-year sales from April to June 20 were 31.2% down, having lost a full month of trade when all the stores in the group closed in April.
STORE LEASES
As store leases come up for renewal, it is targeting a higher percentage of “variable” rent. This usually means rent that can change based on turnover, should a store trade more poorly than expected. New stores will be small to medium in size, it said. It has reduced rent in its recently renewed leases, which has helped to keep expenses down.
Blair said the company has reached a deal with landlords representing the property industry (PI Group) and paid full rent for May and June, and undisclosed amounts for April when stores were shut.
Estienne de Klerk, chair of the PI Group, said: “Mr Price and the [property] industry were the first to agree a deal acceptable to the industry for the lockdown months of April and May.”
Mr Price management declined to give media interviews about its results.
MR PRICE IS ONLY INTERESTED IN BUYING LOCAL COMPANIES WITH A PRUDENT BALANCE SHEET AND A STRONG MANAGEMENT TEAM