Weaker Mr Price pins hope on Christmas sales

Author : Liesl Peyper for fin24.com

A difficult trading environment and a late start to the winter have put pressure on Mr Price Group’s [JSE:MPC] financial results posted for the 26 weeks ended 1 October 2016.

The share price reacted negatively, dipping 2.88% to R129.85 in late afternoon trade.

In a statement to shareholders, the retailer, which sells apparel, homeware and sportsware, said its interim dividend of 228.2c per share is down 8% from the corresponding period in 2015.

Diluted headline earnings per share (Heps) were 351.2c – down 13.7% from the corresponding period in 2015, while normalised operating profit dipped by 4.2% to R1.3bn.

Total revenue grew by 1.5% to R9.2bn with retail sales increasing by 0.4% to R8.6bn. Cash sales climbed by 1.9%, which represents 82.6% of total sales, but credit sales took a knock, declining by 6.2%, due to the introduction of stricter credit regulations through the National Credit Act implemented in September 2015.

The Group’s other income, derived from its financial services division, MRP Money, increased by 27.9% to R543m, driven by and large by cellular sales, which increased by 73.9%. Insurance and debtors’ interest and fees improved by 9.4%.

Mr Price Group’s CEO Stuart Bid said MRP Apparel, which accounts for 59.3% of the Group’s sales, and Miladys performed “well below” expectations.

He ascribed this to the poor economic environment, revised credit-granting regulations, the late arrival of winter weather and higher prices caused by the weak rand.

“We should have taken winter markdowns earlier,” Bid said, “and our assortments and marketing should also have been more focused on value rather than fashion in this climate. A drive to enhance our value offer is currently being implemented by the merchandise teams at MRP.”

MRP Sport on the other hand posted stronger sales, which increased by 13.3% to R634.5m, which is regarded as a good trading result amid difficult conditions.

MRP Home increased sales by 1.6% to R1.6bn, while Sheet Street grew its sales by 4% to R680.3m. Both chains delivered “sound profit growth”, the Group said in its statement.

Despite the tough economic environment, Mr Price Group’s balance sheet remains healthy. Free cash flow generated increased by 8.1% and cash resources were R1.1bn in the 26 weeks ended 1 October 2016.

The provision for impairment of the debtors’ book of 7.4% is “comfortably ahead” of the net bad debt rate of 5.8%.

“We expect trading conditions to remain difficult in the second half with no relief in sight for the embattled consumer,” Bid said. “Much will depend on the Christmas trading period and when the major sales of summer merchandise in the apparel sector start.”

by Liesl Peyper for fin24.com