Tough conditions take their toll on Mr Price

Interim results for the 26 weeks ending October 2016 revealed a tough trading environment for the Mr Price group, as revenue increased only marginally, by 1.5%, and diluted headline earnings per share declined by 13.7%. In turn the group has chosen to reduce the interim dividend offering by 8%. 

A breakdown of divisional income is tabled below.

The apparel division, which accounts for around 70% of group sales, has been weighed down by a weak performance in Mr P Apparel and Miladys. Mr P Apparel was said to have been negatively affected by the late onset of winter and currency fluctuations, while Miladys finds excuse for its drag on sales through a repositioning in the “merchandise fashion pitch to refocus on its core customer”.

Mr Price Sport did however perform relatively well for the apparel division, with sales increasing by 13.3%. 

The weak performance in the apparel division follows on from weak sales numbers realised by sector companions Truworths, Woolworths and Foschini, highlighting a tough period for clothing retail in the current weak consumer environment. 

Mr Price remains extremely cash generative, providing an enviable return on average equity to shareholders. However, the market has become accustomed to earnings growth year after year, which in the short term has reverted to a double-digit earnings contraction.

While the difficult interim period can in part be attributed to a weak consumer environment (evident in fellow sector companion’s softer clothing sales), the extent to which the competitive landscape may be contributing to the decline in apparel sales is uncertain. 

The group’s outlook for the remainder of the year provides little confidence that the short-term earnings decline will reverse course, as the lottery of this year’s Christmas trading period has been cited as the decisive factor therein. 

However, the company has seen its share price discount by more than half its value since its highs in 2015, while dropping more than 45% since the quarterly trading update (which had warned of a challenging interim period). With this in mind it does feel that perhaps the downside in the share may be capitulating at present. Thirteen analysts polled by Thompsons Reuters maintain an average rating of hold for the Mr Price Group. 

Shaun Murison is a market analyst at IG.