Eye on results as cash buoys Mr Price

● Mr Price Group is under pressure to follow through on its turnaround, failing which it can expect to be punished by the market.

With the retailer boasting a high valuation compared with other retailers in the sector, Mr Price would have to meet market expectations, said Lester Davids, a trading desk analyst at stockbroking company Unum Capital.

“They will definitely have to live up to” market expectations in terms of operating profit.

“Any particular miss in that regard could really harm the share price because the expectation is so high,” he said.

Mr Price Group will release its interim results for the six months ended October 30 2018 on Thursday.

In its last update for the first four months of the financial year that ends in March 2019, the group reported strong results that showed growth in total retail sales driven by clothing and homeware sales.

The retailer’s strategy, which is largely based on cash sales, included new store openings and expansions as well as the closure and reduction in size of existing stores.

“What we’ve seen, that was previously a concern, is they were over-spaced in their Mr Price Sport stores and Mr Price Home stores and what they’ve done now is they’ve rationalised that space,” said Daniel Dias, Equity Research Analyst at Arqaam Capital.

“They’ve made their Home and Sport stores smaller and that worked for them in their last set of results. What we want to see is whether that’s continued into these results, which we believe it should. I don’t expect to see any surprises from the results,” said Dias.

The retailer is the leading retail stock over the past 12 months, with its share price up more than 20%.

Davids said: “Consistent growth out of the company [is] due to the fact that they operate mainly on a cash basis.”

Retailers that rely more on credit sales have suffered as most consumers can’t take on more debt.

Also boosting the group is that it has managed to establish itself as a value retailer across its units.

With Mr Price catering to low- to middleincome consumers, “they have a great fashion mix and are able to deliver to their customers and respond to their particular needs”, said Davids.

The group’s latest online retail sales data showed growth of 28% for the four months of the current financial year. Over the past few years Mr Price has been able to grow its customer base visiting its online platform, but because of the nature of its online formula, the group enjoys the highest trading density in SA, even at a time when retailers are going digital, Dias said.

The Mr Price online offering acts as a facilitation tool between consumers and the store, where users can place their orders in a virtual cart and products will be reserved for them for collection. The online formula means Mr Price’s foot count is not likely to be affected by its website.

Dias said online sales are “not going to shift the needle entirely”.

“It’s not going to materially impact the revenue growth, given that SA doesn’t have a high penetration of online sales, not like the UK or the US,” said Dias.

Investors will be focused on the impact of the change in leadership at the company as its CEO Stuart Bird retires at the end of the year. Bird has been at the helm of the Mr Price Group since 2011 and will be succeeded by the CFO, Mark Blair.

“They’ve got a really good management team. It will be interesting to see what the strategy is going forward,” Dias said.

It’s the leading retail stock in the past 12 months, with a share price up 21%