Clothing retailer Mr Price, which posted a record operating profit for the year to April 2, had weaker sales in May as consumers braced for rocketing food and petrol prices.
This suggests that many retailers of discretionary purchases will struggle with high inflation.
However, the constrained environment will not slow Mr Price's growth or acquisition plans. It has entered into initial talks with another affordable fashion firm.
CEO Mark Blair said talks with the retailer “haven’t progressed to any extent past initial discussions”.
The group that bought discount retailer Power Fashion, kitchenware brand Yuppie Chef and footwear chain Studio 88, subject to competition authority approval, is still open to acquisitions if they do not compete directly with existing brands.
Blair said: “We are not pursuing acquisitions at the expense of everything else. It’s a balanced approach to growth.”
Mr Price is also looking at opening standalone cellphone stores having trialled a single one that outperformed expectations. Cellphones and financial services offered in store account for about 3.7% of revenue.
Group operating profit exceeded R4bn for the first time, hitting R4.95bn in financial 2022 financial with its apparel segment reporting its best fourth-quarter market share gains on record.
But Blair said sales at the end of April and May were slower than expected though June’s initial trade looked better. Speaking about rising petrol and food costs Blair said “consumers [are] getting nervous as costs are coming at them”.
Lower-income consumers did not get the special relief R350 grants in April or May too, he said.
Despite a tough period ahead he believes Mr Price is well positioned as it offers value to consumers who need cheaper clothes, while offering investors a track record of consistent growth.
Revenue rose 23% to R28.1bn in the year to April 2. Net profit was 26.4% up at R3.35bn.
Mr Price was boosted by acquisitions in 2022, having forked out R1.5bn for Power Fashion, effective April 2021, and R285m for Yuppiechef, effective August. Excluding acquisitions, total annual retail sales growth was 15.6%.
It had R4.6bn cash on hand at the end of its 2022 year, when it hiked its total dividend 25.9% to 807.7c per share, making for a payout of almost R2.1bn.
Mr Price requires R3.3bn cash for the Studio88 deal, that will see it take over 711 footwear stores with a decision from competition authorities expected in September.
The retailer opened 130 stores in the past year, higher than its usual 80 or so.
Discount retailer Power Fashion has 209 stores, and the group plans to have more than 500 by 2026. It opened 36 stores in the latest financial year, up from 20 in the prior period.
Mr Price plans to open 180 to 200 new stores across all its brands this year.
Blair addressed the shock resignations of Yuppie Chef founders Andrew Smith and Shane Drydens who were set to stay on with the business after it was acquired but left recently. Blair called it an “unexpected management change”.
He said Mr Price appointed a new MD from the Yuppie Chef team and retained technical skills in the business.
“We spent a lot of time with the team. I can tell you they are a capable, engaged and energised bunch of people. So we are really excited about opportunities there.”
Yuppie Chef, an online-only retailer for years before opening retail stores, has advanced e-commerce capabilities that could improve Mr Price’s online offering.
Mr Price, the second-most visited online clothing retailer after Takealot, and its Superbalist brand make up nearly half the market. Online sales account for about 3% of revenue, and a third of those buyers go into stores to collect.
By close of trade on the JSE, Mr Price’s share price had fallen 1.97% to R194.76.
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