South Africa’s Mr Price said on Thursday it would acquire retailer Power Fashion as it looks to expand market share in budget retail, in a deal likely to top $105 million.
The company reported a 25% decline in half-year headline earnings to 333.5 cents in the 26 weeks ended September 26 as lockdown curbs dented sales, but reinstated dividends on a better economic outlook.
Chief Executive Mark Blair told analysts the deal was “immediately earnings accretive” and will contribute about 7% to group revenue.
The deal’s size will be about 4% of its market capitalisation, the budget clothing and homeware retailer said. Its market cap at Wednesday’s close was R39.7 billion ($2.63 billion).
Durban-based Power Fashion sells affordable clothes in 170 stores across South Africa, Eswatini and Lesotho.
With coronavirus dealing a blow to brick-and-mortar retailers, stronger companies have expanded product offerings, investing in online stores and buying up weaker firms in a wave of consolidation sweeping through South Africa.
Recently, department chain owner Edcon was split up and bought by two other retailers.
Mr Price, among the top five retailers in the country by market capitalisation, too had taken similar efforts which have collectively delivered about R400 million in retail sales.
It is now launching three new categories – baby wear, school gear and novelty and gifting – under its clothing business.
“These new high-growth categories should provide additional market share growth and extend the group’s exceptional value offering,” the company said.
The company will fund this through existing cash resources and will not seek shareholders’ money, as previously sought, it said.
Total revenue from continuing operations fell 14.4% to R9.2 billion, with retail sales declining 14.8%.
Post lockdown, group sales have improved, growing by double digits in the first six weeks of the second half. However, sales growth was flat in the week prior to Black Friday week, “indicating the extreme volatility in consumer purchasing behaviour.”
Blair said the Black Friday week, which started on November 23, was challenging, due partly to Covid-19 store restrictions but it anticipates continued high online growth.
By 1104 GMT, shares were 5.86% firmer against the broader index, which was up 0.28%.