The human desire to look good is driving Clicks’ consistent results, as people continue to spend on cosmetics, skincare and edible beauty nutrients such as collagen, as well as sport and slimming supplements.
Clicks’ adjusted headline earnings, excluding base insurance payouts, increased 11.1% to R2.5bn in the year to end-August as sales topped R41bn.
Retail stores grew revenue more than 12% and operating margins reached 10%.
The market was pleased, the share closing 6.06% higher at R261.75, even though Clicks is viewed as a pricey stock.
The “lipstick effect” is a well-known phenomenon and refers to people spending on small luxury items such as makeup even as they tighten their purse strings in difficult times.
Perhaps at Clicks it should be called the skincare effect. Sales of premium skin products spiked during the pandemic, apparently because how people wore Covid-19 masks affected their skin, said CEO Bertina Engelbrecht.
Clicks measured skincare sales exactly a year after masks were no longer required and found to their surprise that sales remained as high, she said. Skin products make up 43.6% of beauty sales.
As people have returned to the office and normal life, sales of cosmetics, fragrances and hair colour products have also spiked, with the beauty category growing sales by 18.3%.
During the year, Clicks took over the Sorbet beautician franchise. It earned fees from 194 stores, with Engelbrecht saying this division “outperformed expectations”.
Clicks sold 43.6% of products on promotion as SA consumers who are under pressure search for value.
Private label sales grew 15.4%, with one in every four products sold now being a Clicks-branded product.
While private label goods are usually more affordable products, they also drive loyalty as customers cannot get the exact brand elsewhere.
As grocery retailers such as Checkers have tried to improve their hair care, body cream and washes on offer, Clicks said it is still winning market share in personal care categories.
Clicks is one of the few SA retailers that is recording volume growth of goods, with most clothing retailers and many food stores selling less this year than the year before.
Clicks stores, including new branches, reported 7% volume growth and about 7% price inflation.
At the same time it is taking longer to pay suppliers: up to 71 days from 63 before.
Delayed supplier payments can improve working capital management and improve cash flow, a figure investors look at to understand the continued health of a business.
Engelbrecht said the slower payments were due to Covid-19 vaccines bought from the government. It can only pay the government for vaccines when it is invoiced.
CFO Gordon Traill was asked during the investor presentation about the longer time it was taking to pay suppliers. He said vaccines played a role and “we made a decision during August to bring in more stock to support the higher sales growth that we’re seeing. So we ended up with higher stock and with higher creditor days.”
The Clicks ClubCard loyalty programme increased its membership by more than 700,000 to 10.4-million active members and these customers accounted for 80.2% of overall sales. Cashbacks of R689m was paid to loyalty members.
Update: October 26 2023
This article has been updated with new information throughout.
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