Mr. Price sales update is disappointing

At half past four yesterday we received another trading update from one of the retailers. These updates are really painting an interesting picture of the environment at the moment. The update was from Mr Price which at the face of it looked very disappointing. But as ever the market had already priced in the news. From trading at R145 on January the 7th it fell all the way down to R125.55 where it opened yesterday. It is currently trading just above R120 as I type this.


"During the third quarter (30 September 2012 to 29 December 2012) of the financial year ending 30 March 2013, Mr Price Group recorded sales growth of 10.0% over the corresponding period in the prior year (2 October 2011 to 31 December 2011). Comparable store sales increased by 4.4%.


Retail selling price inflation for the period was 4.8% and cash sales constituted 78.8% of total sales(LY: 80.1%). Weighted average trading space increased by 3.4%. During the quarter the Group opened 32 and closed 2 stores, adding a net 12 294 square metres to its trading area and ended with 1 019 stores."


As I have mentioned before, these companies are priced for higher growth than 10% and more importantly same store sales of 4.4%. That same store sales was less than the inflation rate so you could even assume less goods went through the tills. But there is a reason for the lack of growth which is interesting from a strategic view.


"As anticipated, sales performance for the quarter was impacted by the planned curtailment of credit sales growth. In the third quarter of the prior year, unsecured credit granted in South Africa increased by 57.1%. With the Group's intention to remain a cash-based retailer and the downside risks currently associated with unsecured credit, a decision was taken to slow credit sales growth off the high base."


Mr Price have always been predominantly a cash retailer. It is what they know and what they are comfortable with. If they are not happy to get into the credit market then I respect that decision 100%. Although I do not believe we are in credit bubble. They have managed to grow fast enough without having to rely on credit and as a shareholder it is one less risk to worry about.


As for the divisions, Apparel (which includes Mr Price, Mr Price Sport and Milady's) disappointed with sales growth of 9.1% and same store sales of 2.9%. The Home division did a lot better with sales growth of 12.6% and comparable sales of 8.8%. Apparel got hit the hardest by the credit pull back. I was surprised by this though, the Famous Brands update indicated that lots of people stayed in South Africa for the holidays which would have benefitted Mr Price, especially Mr Price Sport. But I guess there has also been a big influx of international clothing retailers which has really ramped up competition. Just like what happened with Apple, when there are lots of profits to be made the competition will come running.


Although disappointing there is a legitimate reason that growth was slower than what retailers have been used to. I still like the company and agree with them about the fourth quarter being stronger. In fact they indicated a 17.2% sales growth so far this year.