Mr Price gears up to turn around

Sunday Times - - BUSINESS TIMES - PALESA VUYOLWETHU TSHANDU

WHEN Stu­art Bird took over as CEO eight years ago, the Mr Price Group’s share price had gained over 41% in the pre­ced­ing year.

But since the share price hit a record high in April last year it has shed about 24%.

Bird now has the ar­du­ous task of turn­ing the busi­ness around.

Mr Price re­leased a set of dis­mal re­sults this week — re­port­ing the group’s first earn­ings de­crease in 16 years. For the year ended April 1, di­luted head­line earn­ings per share fell 10.4% from the pre­vi­ous year, to 887.9c.

With re­tail sales in com­pa­ra­ble stores drop­ping 3.6.% to R18.6-bil­lion, to­tal rev­enue did not even reg­is­ter a 1% in­crease, com­ing in just 0.7% higher at R19.8-bil­lion.

The re­tailer has had to deal with in­creased com­pe­ti­tion from in­ter­na­tional re­tail­ers and a dif­fi­cult op­er­at­ing en­vi­ron­ment.

Speak­ing at the group’s re­sults pre­sen­ta­tion in Dur­ban this week, Bird said: “We do think that we are past the worst of it.

“We see the en­vi­ron­ment has con­tin­ued to be con­strained and in this kind of en­vi­ron­ment your op­por­tu­ni­ties are con­strained to mar­ket­share growth.”

He said the weak en­vi­ron­ment placed greater em­pha­sis on costs as well as ef­fi­ciency.

But de­spite con­straints in the en­vi­ron­ment, the group had the abil­ity to in­crease mar­ket share in all its busi­nesses, he said

Atiyyah Vawda, a re­tail an­a­lyst at Av­ior Cap­i­tal Mar­kets, which has a neu­tral rat­ing on the stock, said: “The rea­son we had them on neu­tral is be­cause we saw that they do have the po­ten­tial to turn around, but it could take some time.”

Vawda said Mr Price had ben­e­fited from a weak op­er­at­ing en­vi­ron­ment and as a dis­count re­tailer might ben­e­fit from the weaker base, as con­sumers sought prod­ucts at cheaper prices.

“We’ll have to see what is sus­tain­able,” said Vawda.

For the pe­riod, MRP apparel sales were R10.9-bil­lion, down 1.7% , while MRP Sports sales in­creased 7.7% to R1.4-bil­lion. Mi­la­dys sales de­clined 5.3% to R1.3-bil­lion. Mr Price’s cash sales for the year made up 83.3% of to­tal sales. To­tal credit sales of which MRP ac­counted for 55%, were 3.1% lower.

Ashraf Mo­hamed, chief in­vest­ment of­fi­cer at JM Busha In­vest­ment Group, said: “They ac­knowl­edge that they have been taken by their for­eign com­peti­tors and they changed their strat­egy and their ap­proach, and they’ve started to see some ben­e­fits from that in terms of where they see growth com­ing from in the fu­ture.”

Mo­hamed said Mr Price was try­ing to po­si­tion it­self to make its brand more “rel­e­vant” in the mar­ket.

Vawda said: “They are able to achieve [a turn­around] pro­vided that they are able to de­liver bet­ter prod­ucts.

“The prob­lem with Mr Price is mainly from the re­tail of­fer­ing or is­sues with their prod­uct type.”

Vawda said the group was com­ing off a low base com­pared to last year, which was af­fected by a warmer-thanusual win­ter.

In the first eight weeks of this year, the group man­aged to drive stronger sales growth.

But as Mr Price Group fo­cuses on re­gain­ing its strong po­si­tion in the mar­ket, it also has to face the Na­tional Credit Reg­u­la­tor.

This week, the reg­u­la­tor found that Mr Price Group had un­law­fully charged con­sumers a club fee on credit agree­ments with Mi­la­dys cus­tomers.

The re­tailer said it would op­pose “the re­fer­ral to the Na­tional Con­sumer Tri­bunal in­sti­tuted by the NCR, as we do not agree with the view held by the NCR”.

Last month, the credit reg­u­la­tor found Ed­con had con­tra­vened credit reg­u­la­tions on its Edgars Club card.

Mo­hamed said the difficulty would come in turn­ing the Mr Price busi­ness around.

But he added: “The busi­ness I’m more wor­ried about on the re­tail busi­ness side is Tru­worths. They are go­ing nowhere.”

On the ques­tion of whether the re­tailer could re­turn to its for­mer glory, Mo­hamed said: “It’s go­ing to be hard for most re­tail­ers to re­turn to their for­mer glory, given the cur­rent en­vi­ron­ment.”

Pic­ture:FREDDY MAVUNDA

HOW THEY ROLL: A Mr Price store in Rose­bank , Jo­han­nes­burg

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