mr price performs well in tough trading climate

MPC - Mr Price Performs Well In Tough Trading Climate
MR PRICE GROUP LIMITED
Registration number 1933/004418/06
Incorporated in the Republic of South Africa
ISIN: ZAE000026951
JSE share code: MPC
Durban, 27 May 2009) Value retailer Mr Price announced good results in a very difficult trading period during which consumer spending was inhibited by high interest rates as well as high food and fuel costs. These factors were compounded by continuing high levels of consumer indebtedness. Retail sales grew by 19.3% to R8.6 billion with comparable sales, which includes sales of expanded and relocated stores in like-for-like locations, up by 11.4%. Profit from operating activities increased by 15.5% with a slight reduction in operating margin to 9.6% of retail sales. Diluted headline earnings per share grew by 16.0% to 244.6 cents per share. Excluding the impact of a higher Secondary Taxation on Companies charge, which arose as a result of paying distributions mainly from share premium in the prior year, diluted headline earnings were up 20.4%. The annual dividend has been increased by 14.7% to 133.0 cents per share with cover maintained at 1.9 times. The return on capital employed was better than the previous year at 52.5%.

The larger Apparel chains (Mr Price, Miladys and Mr Price Sport) had a particularly good year growing sales by 22.7% to R5.9 billion with comparable sales up 16.2%. Operating profit rose by 23.7% to R828.6 million at an increased operating margin of 14.0%. Mr Price was the star performer, growing sales by 4.0% to R4.5 billion with comparable sales 20.3% higher. Excellent fashion interpretations and fashion-value appeal resulted in the division growing market share to 11.1%, as measured by the Retailers` Liaison Committee. Miladys increased sales by 10.2% and exceeded R1 billion for the first time. Comparable sales growth increased by 4.0%. Mr Price Sport opened eight stores bringing the total number of stores under this brand to 31. Sales of R367.1 million were generated in this new chain.

The Home chains (Mr Price Home and Sheet Street) remained under pressure as consumers deferred expenditure on home products in the tighter economic environment. Sales were up by 12.1% to R2.7 billion with comparable sales growing 2.0%. Mr Price Home grew sales by 13.3% to R1.9 billion while Sheet Street increased sales by 9.7% to R0.8 billion. The softer trading conditions also led to higher markdowns and as a consequence, operating profits in this division declined by 29.3% to R83.3 million. However, market share gains in both chains augurs well for the future.

Mr Price International added 10 new franchise stores, bringing the total to 17. These stores performed well and infrastructure is being put in place to add more franchised stores in Africa and beyond.

The group has continued to expand its footprint notwithstanding the economic climate and opened 86 new stores (including franchised) during the year, ending the year with 971 stores. In addition, 54 stores were expanded by a weighted average total of 17 504 net square metres. The result was that group`s weighted average trading space increased by 16.5%.

In line with the group`s focus on working capital management, cash sales comprised 84% of total sales and cash generated from operating activities increased by 35.3%. Cash resources, which will be used to fund future expansion, grew to R660.8 million. The debtors` book continues to be managed cautiously and bad debts decreased from 8.6% to 6.6% of the debtors` book at year end, a significant achievement in this economic environment. Stocks were well managed and stock turn improved to 5.5 times.

Commenting on the results, CEO Alastair McArthur said that he was pleased with the performance of the group given extremely difficult trading conditions. "Our cash-driven value retailing model has proved itself sustainable through both good and bad times.

Our more established businesses certainly performed better. They have the experience of previous downturns and have benefited from merchandise systems improvements made through Project Redgold. Customers delayed purchases of home products and this has made life more difficult for the home chains, but they`re well positioned for an upturn."

McArthur said he expected the gap between the operating margin of 14.0% in the Apparel chains and the 3.1% in the Home chains to close over the next few years. "The Home businesses are clearly more cyclical and achieved much higher margins in the last upturn but, as value retailers, we want them to be less cyclical in the future. Better merchandising systems, space management and marketing in the Home chains will make that difference and will lead to an improved operating margin," he said.

McArthur said that over the past two decades the number of associates in the business had increased almost tenfold to 10 204 full-time associates and 6 651 part-time associates. "We created more than 400 full-time new jobs last year, notwithstanding the economic environment," said McArthur. "Training and developing this large group of people is a major priority in our business."

All associates with one or more year`s service have shares or share options in the company. Store associates receive a free award of shares on which dividends are paid with R13 million having been awarded in dividends to staff over the last two financial years. Associates in the group are encouraged to hold their options until retirement to achieve the maximum gain from the compound growth of the company`s share price. Currently the net gain of shares and share options owned by associates other than directors exceeds R250 million.

McArthur said that the long-term performance of the business had been excellent with 23% compound annual growth in earnings having been achieved over the past 23 years. He said the objective of the management team was to maintain or even improve on that performance through growth and margin enhancement. More than 50 stores, including franchised stores, will be opened in the year ahead to bring the total number of stores over the 1 000 mark. Expansion of high performing stores would continue.

McArthur said that lower interest rates are positive for retail, however levels of indebtedness remain high and there will be a lag before the impact of these lower interest rates reaches customers. He said that while he was hopeful that the negative trend in the retail sector would turn before Christmas trading, global uncertainties could delay the local economic recovery. He said the group was well positioned to capture further market share with its fashionable merchandise at everyday low prices.

ENDS
For further information, please contact Tamra Veley on 083 251 3658 or Dominique van Onselen on 082 802 8184.