01/10/2016

Mr Price Group Limited Reports Interim Results (26 weeks ended 1 October 2016)

PRESS RELEASE
 
MR PRICE GROUP LIMITED REPORTS INTERIM RESULTS (26 weeks ended 1 October 2016)
 
[Durban, 14 November 2016] Mr Price announced normalised diluted headline earnings per share of 360.4 cents,
down 4.9% from the prior year (normalised earnings exclude the impact of foreign exchange (FX) differences
reflected in administration expenses in both periods). On a statutory reporting basis, which includes the FX
impacts, diluted HEPS of 351.2c was 13.7% lower than the corresponding period. The interim dividend of 228.2c
per share is down 8.0% and is based on an increased interim payout ratio of 63%, in line with the company’s stated
aim of aligning this to the annual payout ratio.
 
Total revenue grew by 1.5% to R9.2bn with retail sales increasing by 0.4% (comparable stores -3.2%) to R8.6bn.
Cash sales grew by 1.9% and constitute 82.6% of total sales, whilst credit sales continued to be affected by the
introduction of new credit regulations in September 2015, and declined by 6.2%. Selling price inflation was 11.4%
and unit sales were 10.2% lower. Weighted average trading space increased by 2.2%, while net of closures and
reductions, space was up 3.6%. Other income, derived mainly from the financial services division, MRP Money,
increased by 27.9% to R543.4m, driven by cellular which increased by 73.9%, while insurance and debtors’ interest
and fees was up 9.4%.
 
The merchandise gross margin decreased by 0.9% to 39.8%, impacted by a weak and volatile currency and higher
markdowns. The cellular margin improved from 2.1% to 13.1% due to scale and product mix. On a normalised
basis selling and administrative expenses were well controlled and increased by 2.2%, however this was insufficient
to offset the lower gross profit and normalised operating profit was down 4.2% at R1.3bn.
 
“We were happy with the earnings growth in four of our six trading divisions,” said CEO Stuart Bird. “Despite the
challenges brought about by a poor economy and resulting constrained consumer environment, they held or
improved their GP%’s, managed costs and delivered good profit growth. However MRP Apparel, which represents
59.3% of Group sales, and Miladys performed well below expectations.”
 
Sales in MRP Apparel declined by 0.5% (comparable -4.1%) to R5.1bn. The poor economic environment, revised
credit-granting regulations, late arrival of winter weather and higher prices caused by the weak rand were all
contributing factors. While trade at month ends is up on the previous year, during the middle of the month
discretionary spending on apparel has been significantly curtailed, indicating considerable pressure on consumers
and diversion of spending to food and other essentials. In this tighter environment competition has intensified and
customers have become accustomed to heightened promotional activity and price discounting. “We should have
taken winter markdowns earlier. Our assortments and marketing should also have been more focused on value
rather than fashion in this climate. A drive to enhance our value offer is currently being implemented by the
merchandise teams at MRP,” said Bird.
 
Miladys is undergoing a change in merchandise fashion pitch to refocus on its core customer. This was expected
to impact current performance but the situation was exacerbated by it being a predominantly credit business and
the dynamics currently playing out in the retail environment. Sales decreased by 11.0% (comparable -12.4%) to
R582.4m, but there are signs that the repositioning of the merchandise offer is starting to gain traction in the
summer season.
 
MRP Sport grew sales by 13.3% (comparable 2.1%) to R634.5m, delivering a good trading result in difficult
conditions.
 
In the homewares segment, which constitutes 26.5% of Group sales, MRP Home grew sales by 1.6% (comparable
-0.7%) to R1.6bn and Sheet Street by 4.0% (comparable 3.3%) to R680.3m, with both chains delivering sound
profit growth. MRP Money also improved profitability despite the lower level of credit sales.
 
Due to exchange rate fluctuations, we fully cover our imported merchandise commitments. At the interim stage last
year, we were required to mark these foreign exchange contracts (FEC’s) to market, resulting in a significant gain
in that period in the income statement. As a result of the Group’s subsequent adoption of cash flow hedge
accounting, this adjustment is now accounted for in equity. Losses were, however, incurred relating to the
proportion of hedges that were less than 100% effective and reclassified to the income statement, as well as foreign
currency surrendered.
 
In the last two years the group has spent R1.8bn on capital expenditure to build the necessary infrastructure to
support its growth plans and expand into new markets. In Australia, the two MRP Apparel test stores have provided
good insights into which product categories to focus on in a smaller format test store, while sales performance in
the MRP Home test store which opened three weeks ago looks promising. To supplement organic growth,
acquisition opportunities continue to be assessed, with extreme care being taken to ensure any target meets our
clearly defined criteria.
 
 
The Group’s balance sheet remains healthy. Free cash flow generated during the period of R745m increased by
8.1% and cash resources at period end were R1.1bn. The provision for impairment of the debtors’ book of 7.4% is
comfortably ahead of the net bad debt rate of 5.8%. Although gross inventories are 3.8% lower than March,
markdowns will be required to clear stock carry over, mainly in the MRP Apparel chain.
 
“We expect trading conditions to remain difficult in the second half with no relief in sight for the embattled consumer.
Much will depend on the Christmas trading period and when the major sales of summer merchandise in the apparel
sector start. All our businesses are adapting rapidly to the changed and more difficult trading environment and will
be fighting to maintain or increase their market shares in the months ahead,” Bird concluded.
 
ENDS
Contact
Investor Relations
Helen Grosvenor
Mr Price Group Ltd
hgrosvenor@mrpg.com
+27 31 310 8000

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