Mr Price sees tough times ahead – as government relief for consumers comes to an end

The Mr Price Group has published a trading statement for the 6 months ending 26 September 2020, with the group expecting headline earnings per share to fall at least 20%.

The group said that it also expects consumer health is going to get worse, as various government assistance measures come to an end over the coming months.

“Disposable income levels will weaken further as mortgage holidays end, emergency savings are depleted, unemployment grows, and low- to no-wage inflation takes effect,” it said.

The group further cited the BER Business and Consumer Confidence Indices which were at their lowest levels in 35 years in Q2 2020.

“This signals that the economic and consumer environments are likely to be very challenging for the next 12 to 18 months.”

Mr Price’s management said that they are now focused on dealing with extreme volatility, which is likely to continue for the rest of 2020 and 2021.

Erratic sales trends make forecasting challenging and the impact of the recent move into level 2 lockdown adds further uncertainty, the group said.

“Inventory sell off management remains key in order to avoid excessive markdowns and resultant margin pressure. The exchange rate will become a growing concern for the rest of the financial year and, while the group’s hedging policy is effective, margins will be put under pressure in H2 FY20,” it said.

Managing this impact and carefully considering the ability of an already constrained consumer to absorb inflation will be a key balance to strike during the remainder of 2021, it said.

Budget buying and no credit

While this paints a bleak picture for the economy and personal finances, Mr Price said that it well-positioned to address the needs of this more constrained environment.

“Consumers will be highly constrained and seeking value, and the group will endeavour to further entrench its reputation as ‘the people’s value champion’.

“The group’s fashion-value business model has proven resilient through Covid-19 thus far and it believes that it is positioned favourably to capitalise on current retail trends as well as continue to capture market share in the long term.”

As a predominantly cash retailer, the group said it is also well-positioned to benefit in an environment where consumer credit is restricted.

“The group’s healthy balance sheet, combined with supplementary funding in the form of debt and/or equity if required, provides the necessary liquidity to pursue growth opportunities.

“Organic growth opportunities are being pursued, including the launch of several new merchandise categories in H2 FY21.”

The group provided a further breakdown of its core businesses as follows:

  • The group’s largest division, Mr Price Apparel, having effectively managed stock-flow during the level 5 lockdown period, subsequently responded swiftly to over-trading categories, utilising its strong supply chain network. While not all the sales opportunities could be realised, performance exceeded expectations, the group said.
  • Mr Price Sport experienced high demand for fitness and equipment categories after the initial lockdown period. However, the division’s performance has been negatively affected by restrictions on school activities and team sports, as well as gym closures.
  • Miladys’ more mature and conservative customer is avoiding regional shopping centres, which has impacted sales. Given its higher proportion of credit sales, this division is more affected by the general slowdown in the credit environment than the other divisions.

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Mr Price sees tough times ahead – as government relief for consumers comes to an end