Mr Price Group Limited continues earnings growth
MR PRICE GROUP LIMITED CONTINUES EARNINGS GROWTH
[Durban, 31 May 2016] Mr Price Group today announced increases in diluted headline earnings per share of 17.1% to 1 012.9 cents and dividends per share of 15.0% to 667.0 cents for the 53 weeks ended 2 April 2016.
The Company has achieved 30-year compound annual growth rates in HEPS of 23.0% and DPS of 24.6%. For the first time, Group sales exceeded R20 billion and earnings exceeded 1 000 cents per share, both numbers representing important milestones for the Company.
On a 52-week comparable basis (used for commentary hereafter), diluted headline earnings per share increased by 14.6% to 991.2 cents and the operating margin increased from 17.1% to 18.2% of retail sales and other income (RSOI).
“We are very satisfied with these results, particularly after considering the headwinds that we confronted in terms of the subdued economy, changes in credit legislation, challenges in key African economies and the high base in our main apparel division,” said CEO Stuart Bird. “What is important is that performance in the core South African market was excellent, with operating profit growth of 20.8% absorbing the impact of underperforming and new businesses.”
Total revenue grew by 8.4% to R19.6bn, with retail sales increasing by 8.0% (comparable stores 4.2%) to R18.7bn. Cash sales were 9.2% higher, while credit growth of 2.3% was inhibited by the introduction of new credit regulations last September which slowed new account growth. Retail selling price inflation was 7.0% and unit sales were up by 1.0% to 231.1m. By opening 45 new stores and expanding 26, new space introduced grew by 4.7%, while net of closures and reductions, space was up 3.1%. Other income, derived mainly from the financial services business, MRP Money, increased by 21.5% to R882.3m.
The Group gross profit margin of 41.4% was 0.2% lower than last year. Despite having to deal with exchange rate weakness and volatility, the merchandise gross profit percentage was held in line with last year at 41.9%. The cellular gross margin, which had a higher contribution to Group gross profit than previously, increased to 6.4%, mainly due to critical mass being achieved in MRP Mobile. Selling and administration expenses were well controlled and grew by 3.4% and profit from operating activities increased by 15.5%.
The Apparel chains increased RSOI by 8.8% to R13.9bn. Operating profit rose by 10.2% to R2.6bn and the operating margin increased from 18.3% to 18.5%. Sales in MRP Apparel were up 9.7% (comparable 5.2%) to R11.1bn on a high base, with comparable sales growths in 2014 and 2015 of 13.0% and 12.8% respectively. Operating profit was well ahead of the prior year, with the GP% in line with the prior year and expenses growing at a slower rate than sales. MRP Sport grew sales by 13.8% (comparable 5.3%) to R1.3bn. An improved GP% and cost curtailment resulted in an excellent increase in operating profit. Miladys reported a decrease in sales of 1.9% (comparable -2.5%) to R1.4bn. Trading in this higher margin credit business was also impacted by a strategic change in the merchandise assortment, which will benefit the business in the long term, as will the change in its leadership. Although operating profit was down on the previous year, the division remains a significant profit contributor to the Group.
The Home chains increased RSOI by 5.7% to R4.8bn. Operating profit rose by 18.1% to R767.6m and the operating margin increased from 14.2% to 15.9%. MRP Home, which targets customers in the upper LSM 8-10 range, delivered results that were well ahead of budget and the prior period, despite muted sales growth of 5.9% (comparable 3.9%). The division improved their GP% and were exemplary in cost control. Sheet Street’s sales grew by 5.3% (comparable 3.9%) to R1.4bn, while operating profit also reflected double-digit growth.
Local online sales grew by 63.6% and the business is now generating positive returns. All three MRP brands are now full omni-channel retailers.
MRP Money grew insurance income by 12.2%, mobile (cellular) by 58.7% and interest and fees by 9.4%. Bad debts improved from 6.2% to 5.4% of the debtors’ book, however, in a tightening economic climate, the impairment provision has been set at 7.3%. MRP Mobile achieved profitability in the second half, contributing to the division reporting another year of strong profit growth.
Significant resources have been allocated to realising continued long-term profit growth. MRP Apparel’s 2 test stores in Australia are making progress, and experience gained, albeit over a short trading period, is improving the alignment of the product assortment to seasonality and consumer needs. Improved store operating metrics are being targeted in order to develop a scalable blueprint. MRP Home will open a test store in Australia in October. Locally, the new 57 000 m2 distribution centre is on plan to open next year, while good progress is being made with the implementation of the new enterprise technology systems. “The Company’s strong cash generation and healthy balance sheet have easily absorbed the impact of these investments, which are important platforms for expansion,” said Bird.
The consumer environment is expected to remain challenging in the next financial year. A weak exchange rate impacts all apparel retailers and higher product inflation in the 1st half is expected to impact unit growth. “As a value retailer, our prices will rise less, so comparatively speaking, we are well positioned. Our resilient business model has allowed us to ride through several tough business cycles in past years. The Mall of Africa opened recently with a full complement of local and international retailers. The Group successfully opened 5 stores in the centre including a 2 100 m2 MRP Apparel store which achieved sales which were double their highest ever store opening figures.
In the year ahead we will aim to deliver wanted merchandise at great value, manage our working capital and execute on our key projects. We will continue to think long term while being focused on delivering in the short term,” said Bird.
About Mr Price Group Limited
A high-growth, omni-channel, fashion value retailer: - Targeting younger customers in the mid to upper LSM categories - Retailing predominantly own branded merchandise - 83% of sales are for cash - 1 200 owned and franchised stores and online channels offering full product assortments - Market capitalisation of R45bn - Included in MSCI Emerging Markets Index - Included in JSE Top 40 and Socially Responsible Investment Index - 3rd in Financial Mail Top Companies 2015 - 17th in Business Times Top 100 Companies, highest ranked retailer
Mr Price Group Ltd
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