SIKI MGABADELI: Health and cosmetics retailer Clicks reported that diluted headline earnings per share rose 12.8% to 177.6c for the first half of the year. The interim dividend was up 22.4% to 65.5%.
David Kneale, the chief executive, spoke to us and I began by asking him how they are dealing with cash-strapped and value-conscious consumers.
DAVID KNEALE: Thank you. Yes, we think these are good results. Look, I concede that we are operating in relatively resilient markets, health and beauty, but even in tough times people still want to look good and feel good.
But we’ve adapted our business model, we have a low-cost culture in the business and we are determined to offer customers value, and that’s what we’ve striven to do.
SIKI MGABADELI: And what does adapting that business model mean?
DAVID KNEALE: Well, it means that we now run more promotions. So promotions account for 29% of our sales. It means having more competitive everyday prices, it means more private-label products, which is good for our margin but offers customers better value. And it means managing our costs very carefully.
SIKI MGABADELI: And how much have you invested in your stores and in advertising costs?
DAVID KNEALE: Well, look, the expenditure in stores has reached record levels this year – not just in new stores but over the year we’ll refurbish almost 60 Clicks stores, so they’ll be modern and appealing to customers. And yes, advertising costs have increased by more than 10% over he half-year to communicate the message in terms of promotional activity, the three-for-twos for which Clicks is famous and now more recently the re-launch of our Clubcard, with cash-back rewards loaded directly on the card
SIKI MGABADELI: Now, in addition to refurbishing, are you opening new stores?
DAVID KNEALE: Yes, we are. I think over the year we’ll open a net 24 new stores, which will take us close to 490 stores. The long-term goal is 600 stores in South Africa.
SIKI MGABADELI: Wow!. How do you decide where to open them and the timing as well?
DAVID KNEALE: We are opening in a combination of new shopping centres, so the timing of that is dependent on when they are being built and completed. But there are also opportunities for us opening in existing shopping centres – and that’s really led by being a pharmacy business now. The key for Clicks is convenience. We want there always to be a Clicks near you.
SIKI MGABADELI: And that contribution then from pharmacies – what’s that been like?
DAVID KNEALE: Pharmacy grew about 14% in this period and it’s about 27% of the business now.
SIKI MGABADELI: And do you plan to grow that?
DAVID KNEALE: Yes, we do. We’ve got 346 pharmacies at the moment. We’ll open another 20 of those this year. The long-term goal will be 600 stores in South Africa and a pharmacy in every one.
SIKI MGABADELI: And outside of South Africa are you planning to open more Clicks?
DAVID KNEALE: We’ve got 22 stores outside of South Africa now. We’ve taken a cautious approach because our main focus is in this country because of the opportunities that I’ve just described. The biggest number of stores we’ve got at a the moment are in Namibia and Botswana and our approach is to go carefully, test, learn and then roll, so that we build scale in one country – which we think is more efficient both operationally and in terms of the supply chain. So 15 stores in Namibia now; we can increase the number there. We’re testing in Botswana and are very comfortable with that and we’ll roll in Botswana next year.
SIKI MGABADELI: And what’s your outlook, David?
DAVID KNEALE: The outlook for the year is that I think we can stay under pressure, so nothing is going to change there. Load-shedding I think poses a further risk to sales in the next six months. But I think we are fairly confident that we’ve got our business model right and in the six [months] we’ll continue to grow. So we forecast headline earnings per share up between 10 and 15% for the year.