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Mr. Price results

Yesterday Mr Price released full year numbers for the period ending 30 March 2013 which came in at the middle of the range alluded to by the trading update released at the beginning of the month. This company sure has been an amazing performer. And they remind you of this in the report, why not?


"The Company has achieved a 27-year compound annual growth rate in HEPS of 23.5%, DPS of 25.3% and share price of 26.9%. The return on equity of 51.1% is the highest achieved to date."


This year was no laggard as the business managed to increase headline earnings per share by 26.3% to 635.5c. This came off the back of a 12.7% increase in sales and a gross margin increase of 0.4% to a healthy 42.2%. Same store sales came in at 7.7% while inflation increased by 5.1%. 77 stores were opened and 20 were expanded. Let's look at the divisions and then see why and how earnings growth comfortably beat sales growth.


The Apparel chains increased sales by 12.5%, comparable sales up 5.9% while earnings increased 14% thanks to margin expansion. Within this division Mr Price Sports grew sales 22.9% (comparable 11.9%) which is an exciting prospect for the group going forward. You already know my thesis on sports apparel and our recommendation on Holdsport.

The home chains increased sales by 15.2% with comparables up 10.8%. This again shows us that Ellerines are losing market share with their higher end brands such as Wetherlys. Margins grew very nicely in this division, up to 12.9% from 11.2% the year before. This was achieved in a weaker rand environment which means that the business has been able to comfortably pass on the cost increases to the client while remaining competitive.


So what has grown that bottom line so nicely? Trade receivables increased by 28.4% to R1.6bn. Their expansion into the credit market has done wonders for their earnings growth. However, and this is nice to hear as an investor, they are doing this very cautiously and have set a limit of at least 75% having to be cash sales. The current ratio is 80.4%. This makes me believe that every cash retailer should trade at a premium to one who relies on credit. This is because entering into the credit world can enhance earnings considerably over a short period of time. A business like Cashbuild comes to mind, who have the potential to enter the credit market more aggressively. I think a ratio of 75% cash, 25% credit sounds healthy.


Their outlook on the industry is interesting.


"In the short term there are some serious challenges facing consumers. Growth in consumer spending in South Africa is expected to become more subdued and less supportive of economic growth. "The current financial hardships are mainly being experienced by low-income households and it is a misconception that these represent the Group's core customers," said Bird. "As per the latest independent AMPS survey, our largest chain, Mr Price Apparel, has a strong representation of shoppers across the mid to upper LSM spectrum (LSM 6 to 10)." Under tight economic conditions, shoppers tend to shop for value and therefore, as a value retailer, the Group is well placed to attract more customers. The Group will continue its unwavering focus on its core competency - offering fashionable merchandise at everyday low prices."

This is a fantastically managed business and I think one of secrets behind their success is their buyers. These are people who work for Mr Price and go around the world finding the right goods to put into Mr Price stores. They always seem to get it right and that is why Mr Price have moved up the LSM line and are able to charge a premium. Their clients have happily absorbed the price increases and shareholders have happily reaped the benefits. I don't see this trend ending although maintaining this kind of growth in current conditions will be tough.



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