Mr Price reports spike in demand for credit, as customers come under pressure

Amanda Bullock / November 21,2022

Clothing and homeware retailer Mr Price says it has seen applications for new store accounts increasing by 45.5% in the 26 weeks ended 1 October 2022, showing evidence that the customers’ rand is not stretching as far as it used to.

The group, which released its half-year financials on Thursday, says that the surge in store credit applications shows that its customers are facing “increased pressure on households’ disposable income as household savings diminish due to inflation and interest rate increases.”

For the JSE-listed retailer which runs a majority cash business – with cash sales constituting 84.9% of group retail sales – this period has seen a higher growth in credit sales than cash sales, which registered a 5.2% increase.

“The group’s credit sales grew ahead of cash sales at 11.5% (contribution: 15.1% of retail sales), driven by new account sales growth up 20%.”

“Growth within the existing credit customer base was robust and the One Store Card facility added sales of R242 million during the period,” the group said.

Maintaining a cautious stance however, the group says in light of Transunion Consumer Credit Index data for the second quarter of 2022 – which reported that the credit environment is showing signs of sharp deterioration – it has no plans to push the envelope on credit.

“The group has no appetite to push the credit channel outside of its long-established low-risk tolerance and reduced its approval rate by 640bps to 27.1%.”

“The declined account applicants are increasingly converting to the group’s lay-bye offering, positively impacting the group’s cash sales.”

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Key metrics

The group registered growth for key metrics despite operating in a tough environment during this period, which was made worse by intensified power cuts – causing the retailer to lose approximately 80 000 trading hours – as well as the inconsistent and non-payment of social grants, which affects the buying power of a significant chunk of the retailer’s customers.

Group revenue increased by 6.5% to R13.3 billion, with the group gross margin expanding by 60 basis points and expense growth remaining controlled and increasing by 5.9%.

Headline earnings per share increased by 10.6% to 496 cents, up from 448.3 cents in the previous period.

The group declared a double-digit increase in its interim dividend of 10.6%, to 312.5 cents per share.

“The top-line performance did not meet our internal targets, but our market-leading retail performance post Covid-19 – with sales growth of 37.8% in the base, in which we gained further market share – was always going to present a challenge,” CEO Mark Blair said in a statement.

“I take comfort that the systems impact in particular is once-off and we have achieved a significant milestone in our Retail Modernisation Programme aimed at de-risking our IT environment and establishing an infrastructure to support our ambitions.”

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While the group expects the trading environment to remain challenging, and for the retail credit environment to tighten in coming month, it’s looking forward to customers being redirected to its core stores as they look for budget friendly buys amid tough economic times.

“It’s been a tough period for trading. But against all the uncertainty, we’ve gained traction on our strategy implementation,” Blair said.

“Our acquisitions have been value-accretive; we launched the Mr Price Baby concept; proved the business case for a rollout of Mr Price Cellular stores; closed out the Studio 88 acquisition; were recognised as the only fashion-value retailer in the FTSE/JSE Responsible Investment Top 30 Index; and carried out an extensive organisational design review to ensure we have the capacity and skills to execute our long-term plan. I am immensely proud of the dedication and energy of all our associates,” the CEO added.

 

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