Mr Price released an unexpectedly weak set of interim results for the six months to October 1 at the end of November, though much of that was due to a nonrecurring issue with the implementation of ERP, a software program.
This cost the group a temporary loss in market share — the first time in at least two years that Mr Price had experienced a reduction in market share.
A couple of years ago, CEO Mark Blair announced that Mr Price aimed to become the most valuable JSE-listed retailer (ranked by market capitalisation) but he gave no indication of the time frame over which that mission was to be achieved. Just as well, as Mr Price is nowhere near the top three, never mind number one.
At a market cap of R41.95bn, Mr Price is certainly the largest of all the clothing retailers listed on the JSE (TFG is on R34.38bn, while Truworths is on R23.53bn) but it is nowhere near the rarefied levels of Shoprite at R134.7bn, Clicks at R66.9bn, Woolworths at R68.7bn or even the somewhat hastily reconstituted Pepkor at R74bn.
So while Blair’s mission is laudable, it is unlikely to be achieved in anything but the very long term, provided of course that Mr Price manages to demonstrate a significant and sustained earnings outperformance compared with all other retailers. This is a very big ask, which, at present, appears unrealistic.
For the interim period, revenue rose by 6.5% to R13.3bn, while operating profit margin rose by 80 basis points to 14.7%. Diluted headline earnings per share were up 10.8% to 486.1c and an interim dividend of 312.5c per share was declared, an increase of 10.6%.
Implementation of Oracle’s ERP software involved some teething problems that resulted in a degree of merchant distraction. An indirect consequence was a loss of market share in April and May, compared with market share gains in all other months.
As was the case with most other retailers, rotational power cuts played havoc with sales. About 80,000 trading hours were lost and/or disrupted due to load-shedding. Approximately 44% of available trading hours in the first half were lost in September alone. Clearly this is not sustainable and, as is the case with rival TFG, plans are in place to have 70% of stores on battery backup by year-end.
As with a number of other discretionary retailers in SA, credit sales grew much more strongly than cash sales during the period. Cash sales, which currently constitute almost 85% of group sales, rose by 5.2% during the interim period, while credit sales grew by more than double that rate, at 11.5%.
Mr Price management is confident about recouping market share in the second half of the financial year without necessarily resorting to increasing its credit sales to do so.
The first-time inclusion of Studio88 in the second half will boost revenue and earnings growth to an extent. And it should also be noted that the base of comparison in the first half of the previous year was especially high (up 37.8%), making it difficult to maintain anywhere near that degree of growth in the first half this year. Of course, that normalises in the second half as the base effect falls away.
Mr Price and TFG are leading the charge among SA clothing retailers in terms of their aggressive expansion drives, albeit in quite different ways. While TFG is gaining a lot from local quick response manufacturing and its offshore units, especially Australia, Mr Price is doing it in a much more conventional manner.
Mr Price enjoys a much better price-to-earnings rating in the market (12.5) than TFG (9.7) and this may well be due to its far better long-term compound annual growth rate in earnings and dividends. But both groups have clear strategies and both of them are highly driven entities, operating predominantly at the lower end of the market. It will be instructive to see which company has the better long-term approach to retailing in this segment.
• Gilmour is an investment analyst.
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