Clicks to invest R700m in stores

• Capital expenditure to hit record levels as health and beauty retailer seeks greater volumes to offset moderating rate of inflation

Retail and healthcare group Clicks is targeting earnings growth of 12%17% for the financial year to August 2018, driven by competitive pricing, promotions and loyalty reward programmes.

Retail and healthcare group Clicks is targeting earnings growth of between 12% and 17% for the financial year to August 2018, driven by competitive pricing, promotions and loyalty reward programmes.

The group said 2018 would be a record year of capital expenditure as it aimed to invest over R700m in new stores, pharmacies, store refurbishments, supply chain infrastructure and information technology.

CEO David Kneale said the group had plans to open 40 stores in 2018 in an effort to increase volumes as inflation slows. The stores would mostly be located in urban areas where they could take advantage of the high density and convenience of location.

“To increase volumes we must be innovative and we have begun by introducing over 300 Sorbet lines,” said Kneale.

Clicks has expanded its store footprint by 24 shops in the six months, bringing its total number of stores to 646. It hopes to grow its South African store base to 900 in the longer term.

A portfolio manager at Mergence Investment Managers, Peter Takaendesa, said the pharmacy offering of Clicks was unique and attractive, driving high traffic into stores. “Clicks has done well in the health and beauty sector but, as pricing begins to slow down, they must capitalise on volume,” Takaendesa said. South African consumers still had an appetite for brick-and-mortar shopping, he said. On Thursday the group reported continued strong growth in retail health and beauty sales, which includes Clicks and the franchise brands of The Body Shop, GNC and Claire’s. The segment recorded a 14.3% rise in turnover, boosted by positive trade during the festive season, appealing promotional offers and competitive pricing.

“We’ve taken market share in the health and beauty sector and we plan on continuing to take up more market share as we roll out the new stores,” said Kneale.

Group turnover increased by 10% to R14.4bn with the retailer generating cash inflows from operations of over R1.1bn for the six months. The group’s total income margin improved by 40 basis points to 27.1%.

Its Clicks ClubCard loyalty programme attracted nearly a million new customers from February 2017, taking its total to 7.5-million.

The retailer’s pharmaceutical wholesaler, UPD, grew turnover by 11% and its market share to nearly 26% from under 25%.

While its health and beauty segments have been on a positive growth trajectory, the Musica brand has come under pressure with the rise of digital downloads.

Kneale said that although Musica’s sales fell 6.4%, all Musica stores remained profitable. “We have responded by growing our speakers and headphone offerings” he said.

The board raised its interim dividend by 16.5% to 102.5c, from 88c.