Mr Price, supplying fashion apparel and homeware at the lower end of the market, managed to extract a reasonable result in the year to March 31 2020 in the face of a rapidly deteriorating SA economy.
Like its peer TFG in the clothing retail sector of the JSE, Mr Price acted quickly and decisively to counteract the effect of the Covid-19 pandemic. It exited operations in Australia, Nigeria and Poland, allowing it to focus exclusively on Southern Africa, Ghana and Kenya.
The group also signalled its intention to raise new capital for growth opportunities, though this is not going to happen immediately. And, like TFG, it does not appear interested in acquiring any parts of Edcon.
At the outset of the pandemic, management immediately enacted an austerity programme that included suspending head office pay increases, reviewing incentive structures, a group-wide hiring freeze, and reducing the number of contractors
Extensive discussions were held with landlords. Certain rentals were withheld in the initial period of strict lockdown when all trading was prohibited, but it continued to pay full rates on properties in that period. As restrictions eased, full rentals were paid in May and June.
In this financial year, revenue rose 2.1% to R23bn, but if the last two weeks of March are excluded, group sales would have risen 4.2%. The second half was surprisingly strong until lockdown effects kicked in, with third-quarter sales rising 3.5%, compared with 1.7% in the first half.
Operating profit margin slipped 0.4% to 17.4%, headline earnings per share fell 9.9% to 1029.4c and the final dividend was passed, leaving a total dividend of 311.4c for the year.
There were other fourth-quarter challenges. Power blackouts affected eight days in January and 16 days in February. Also, there was a higher proportion of distressed merchandise on promotion by competitors in December 2019 and January 2020. Sales in the first two weeks of March rose 8.5% but slumped 32.5% thereafter and new account openings were suspended.
The great majority of sales were generated in SA and comprised cash sales. Online sales, while tiny, grew 17.5%. Mr Price is a leader in local online retailing, with a dedication to this technology unmatched by any other local peer. This should give it a competitive advantage post-Covid as many customers could fear a return to conventional shopping in crowded shopping malls.
The extent and longevity of the Covid-19 pandemic and its consequential fallout will dictate the composition of the clothing retail industry in SA. Only those with strong balance sheets and a clear strategy will survive and prosper.
With the demise of Edcon, two players stand out as the main players: Mr Price and TFG have demonstrated their skills in dealing with the pandemic, have strong balance sheets, are predominantly cash businesses, have advanced capabilities for enhancing their online presence and are raising capital with a view to buying distressed competitors as the pandemic wreaks further havoc on the economy.
However, they differ in that Mr Price is a tightly configured grouping of five main businesses, all locally based, while TFG offers a significantly broader spectrum of 29 businesses across 32 countries.
The Mr Price share price has fallen more than 50% from its peak of R293 in March 2018. TFG has fallen even further, recording a slump of 69% during the same period. On a PE ratio of 14.1 times, Mr Price is cheaper than it has been in a long time.
However, its PE ratio is twice that of TFG, probably because it has a better long-term compound annual growth track record in revenue, profits and headline earnings per share. But TFG has recently demonstrated its ability to outperform competitors, with its only perceived weakness being its UK operations.
Investor choice is difficult. Mr Price has an enviable track record, though its fortunes now depend largely on an increasingly moribund local economy. TFG, conversely, offers a nice rand-hedge opportunity and it is much cheaper.
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