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Mr Price posts first annual profit drop in 16 years

Retailer blames a drop in sales on weak consumer sentiment as political turmoil.

JOHANNESBURG – South Africa’s Mr Price Group posted a 12% drop in full-year earnings, the first drop in annual profit since 2001, as consumers struggle in a sluggish economy.

The clothing retailer, however, kept its dividend unchanged, supporting its shares after weeks of decline.

Mr Price, which also sells homeware and furniture, is facing increased competition from international chains Zara, H&M and Cotton On and has lost market share as local competitors, such as the ailing Edcon, mark down stock.

Read: Renewed hope for Edcon’s recovery plan

“This was the group’s first earnings decrease in 16 years during a very difficult trading period,” said chief executive Stuart Bird.

Mr Price blamed a drop in sales on weak consumer sentiment and the knock-on effects of political turmoil which culminated in President Jacob Zuma firing finance minister Pravin Gordhan in March and credit ratings agencies downgrading the nation.

“Cabinet reshuffles and downgrades by ratings agencies have caused further exchange rate volatility, which the consumer ultimately has to absorb,” the company said.

Mr Price, which has grown over the past three decades by undercutting competitors and catering to thrifty shoppers’ fashion needs, said a mild winter caused rivals to mark down stock to match its own prices, further weighing on sales.

Edcon, an unlisted retailer, has had to restructure debt and clear old stock at much lower prices. Woolworths also marked down stock in what its chief executive Ian Moir described as a “feeding frenzy”.

Read: Woolworths splashes cash Down Under

“The retail environment has become more competitive, with any growth in a stagnant market coming from increased market share,” Mr Price said.

Diluted headline earnings per share fell to 887.9 cents in the year to end-March, from 1 012.9 cents in the previous year.

But shares in Mr Price were up 4.24% at R152.39 at the close, compared with a 0.35% gain in the JSE’s benchmark Top-40 index, as the company kept its full-year dividend at 667 cents per share.

“Mr Price maintaining its dividend is an indication by management that they probably don’t see a deterioration in future prospects,” said Gryphon Asset Management portfolio manager Cassie Treurnicht.

Lacklustre results from other retailers had weighed on Mr Price, said Treurnicht, with its shares down around 15% since end-March.

The company said improvement in the consumer environment is likely to only be gradual, but added that it was seeing encouraging signs in the current financial year.

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“Mr Price, which also sells homeware and furniture, is facing increased competition from international chains Zara, H&M and Cotton On and has lost market share as local competitors, such as the ailing Edcon, mark down stock.”

Could not be more wrong! How is Zara or H&M in the same market segment as Mr Price? Edcon sells premium brands and is lost in the identity wilderness.

Mr Price is a value retailed place below all those stores but above Ackermans, Pep, Pick ‘n Pay Clothing, etc.

“Mr Price blamed a drop in sales on weak consumer sentiment and the knock-on effects of political turmoil which culminated in President Jacob Zuma firing finance minister Pravin Gordhan in March and credit ratings agencies downgrading the nation.”

Again nonsense.

The reason Mr Price is doing badly is very simple. It is also something that I have pointed out numerous times on here and something which is common across retailers in South Africa.

THEY DO NO UNDERSTAND THE TARGET MARKET OF EACH STORE!!!

If you have a Mr Price Sandton City vs a Mr Price in Tygervalley vs Mr Price is Gateway vs Mr Price in Maponya Mall in Soweto, I can guarantee you that the group of people visiting each store will want different things compared to the group of people visiting every other store.

Getting the right mix of goods that are stocked at the store to sell is a skill that is called RANGING and FORECASTING.

Mr Price has been abysmal at this.

Fix that and your sales will increase.

Simply. As. That.

I so much agree with your point regarding the target market.

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