Durban-based clothing and home retail giant Mr Price Group warned on Wednesday that it expects a steeper than initially projected slide in earnings in its next set of results.
In a trading update that came out 15 minutes after the JSE closed on Wednesday, it warned that headline earnings per share will likely be between 23% and 28% lower for its 26-week interim period to September 26 compared to the corresponding period last year.
This is worse than its forecast in a trading update in August, which noted that headline earnings would be at least 20% lower, due largely to the impact of the Covid-19 lockdown and restrictions to trade at the start of its financial year.
Mr Price, which has seen its share price slide 30% to R131.50 since the beginning of the year, anticipates basic headline earnings per share falling from 443.2 cents for its interim period last year, to between 319.1 cents and 341.3 cents for the half-year to September 26 in its latest forecast.
“The closure of all the group’s South African stores during the nation-wide lockdown between 27 March 2020 and 30 April 2020, and the subsequent trade restrictions due to Covid-19, has had a material impact on the group’s earnings,” it said.
Mr Price estimates that it lost approximately R1.8 billion in sales in April, when SA was in a ‘hard lockdown’ and only retailers selling essential goods were allowed to trade.
“Despite stores being permitted to trade from May, the group was further negatively impacted as its full assortment of merchandise was not permitted to be sold until 1 June 2020,” it noted.
All major JSE-listed retailers in South Africa have taken a hit to sales and profits due to Covid-19. However, clothing and apparel retailers – including Mr Price, TFG, Pepkor, Truworths and Edcon – have been worse affected.
The difficult market forced Edcon to go into business rescue, which eventually saw its Edgars and Jet chains being taken over by some of its rivals.
Besides initially not being allowed to trade and then being restricted to selling only certain items under Covid-19 rules, the work-from-home phenomenon has also affected sales of fancier clothing and workwear. Groups like Truworths, Woolworths and TFG, which have retail operations in the UK and Australia, have also faced coronavirus-related sales hits in those markets too.
TFG, which is expected to release its half-year results on Thursday, noted in a trading update two weeks ago that its basic earnings per share is expected to slide by between 65% to 75%.
Meanwhile, in its trading update on Wednesday Mr Price said that following a detailed review, impairments of R153.4 million were recognised relating to IT assets and right-of-use-assets (store leases).
“These impairment charges were included in basic earnings per share but are added back for the calculation of headline earnings per share,” it said.
“The current economic conditions have required an increase in the impairment of the group debtors’ book to 15.2%. Cash continues to be the favoured tender type, accounting for 86% of total sales. The group achieved its target of double-digit declines in inventory on hand in H1 FY21, which has been adequately provided for,” Mr Price added.