Mr Price rides out tough times

A final cash dividend of 79.5c per share was declared, which brings the total distribution for the year to 116c per share.

Retail sales were up 19% to R7.421bn, while operating profit was 17% higher at R716.2m.

CEO Alastair McArthur said the group was able to weather the tougher conditions because of its appeal as a value retailer and its predominantly cash formula.

"Our established apparel chains which represent the bulk of our business have performed exceptionally. The home businesses have had more difficulty but are adapting to the changed conditions. Our trading space reached half a million square metres, we created nearly 700 new jobs during the year and our franchising business has taken off very well."

McArthur said the buoyant economic environment that has been enjoyed by retailers in recent years has ended, as consumers have been hard hit by increases in interest rates, food and fuel prices as well as property rates, all of which have led to decreased spending, particularly on durable and semi-durable products.

The effect was more marked in the second half of the year, he said.

'Thrilled'

The Apparel division - Mr Price, Miladys and Mr Price Sport - grew sales by 22% to R4.9bn. Profits were up 32% to R670m and the operating margin improved from 12.7% to 13.8% of sales.

"We are thrilled with the success of the eight new Mr Price express' stores," said McArthur. "This concept enables Mr Price to enter trading areas not previously considered, through lower operating, capex and rental costs. We plan to roll out many more such stores which are achieving the same operating margins as our regular stores."

Miladys produced a solid set of trading results. The division opened 12 stores during the current financial year. The two stand-alone Rene Taylor stores opened during the course of the year continued to produce excellent trading results and the concept will be rolled out further in the new financial year.

Mr Price Sport opened a further 15 stores in the current financial year. The division now operates 23 stores and is approaching critical mass. This new chain will open a further eight stores before Christmas.

The Home division - Mr Price Home and Sheet Street - has been more affected by the changes in spending patterns and recorded an increase in sales of 14% to R2.4bn.

"The big Mr Price Home stores are more profitable and create a better shopping experience," said McArthur. "Some of the smaller affected stores will be converted to other concepts or closed, in line with the ongoing retail evolutionary process and it is essential that we keep ahead by updating our retail concepts in terms of store size and range of products carried."

The group increased its store numbers by 67 to 896 at year end, and gross trading space surpassed the half a million m2 mark for the first time.

Mr Price Franchising successfully opened six stores in three African countries, across the Mr Price, Mr Price Home and Sheet Street formats.

"Sales have far exceeded expectations, confirming our view of franchising being an exciting growth strategy. A further 15 franchise stores are planned for the coming financial year, including a test of the Mr Price Home format in the Middle East," said McArthur

'Shoppers tend to seek value '

The debtor book increased by 20.5% to R542.3m at year end. As a result of the worsening economic climate and with the bulk of the book being relatively immature following the rollout of credit in the cash chains last year, net bad debts excluding collection costs increased to 8.6% of debtors.

The provision for bad debts has been set at 9.0% of debtors at year end.

Looking at prospects for the rest of the calendar year McArthur said: "We are trading in difficult times, which are likely to get even tougher.

"We have still to feel the cumulative effect of the interest rate and other pressures on consumer spending. Under these economic circumstances, shoppers tend to seek value and therefore, our group is well positioned to attract more customers with our fashionable products at everyday low prices.

"Internationally value retailing has proved to be the best formula for tough trading times and it will help us prosper through the downturn." p> The group is well placed to increase market share over the medium term and expects to achieve growth in earnings in the forthcoming year notwithstanding the challenging economic climate, he added.

- I-Net Bridge