Mr Price 'whipping Woolies'
May 28 2010
Retail Wrap >>

Value retailer Mr Price appears to be gaining market share at the expense of rival Woolworths, which is battling to retain its traditional customers, an analyst said on Wednesday.

Commenting on Mr Price's annual results to end-March, Gryphon Asset Management chief investment officer Abri du Plessis said the figures painted a picture of Mr Price becoming a "clothing retailer of choice in the middle market" bracket. On the other hand, Woolworths' move towards a more inspirational product range in the clothing division has resulted in the chain losing its traditional customers, he said.

On Wednesday, Mr Price reported a sales growth of 10.0% to R9.5bn, and said it was gaining market share in its apparel division. Core headline earnings per share were 21% up from last year.

Mr Price's flagship clothing chain of the same name grew sales by 15.9% and continued to gain market share for the 48th consecutive month.

"I think they are taking market share from Woolworths," said Du Plessis. "Woolworths is still struggling to retain its traditional customer. The strategic mistake it [Woolworths] made was to shift its focus to higher LSM in the clothing division. Unfortunately, it is losing its traditional customer because of that."

Du Plessis said comments from Edcon's (the parent company to Edgars, Jet and Legit) recent results suggested the group is not under pressure to the same extent as Woolworths.

Though it was hard to get figures from independent players, they did not really have a major role, he said.

However, Roger Tejwani, retail analyst at Credit Suisse Standard Securities, has a different view. "I don't really think a typical Woolworths customer would go to Mr Price. Woolworths has also done quite well over the past six months in its clothing division." However, Tejwani agreed Mr Price is benefiting from consumers who have become more price conscious, adding that the group has been able to maintain its customers throughout the recessionary environment.

While the Miladys clothing chain continues to battle with sales (down 1.3%), Mr Price Sport sales were up 19.1%.

Du Plessis reckoned this was due to more stores being added in the division during the course of the past year. But, he added, all retailers have enjoyed a "bit of nice lunch from the 2010 FIFA World Cup" buying spree, he said.

The home division reflected difficult trading conditions (growing sales by 3.3%), but the group said trading from the second half of the previous year showed signs of improvement.

Mr Price's winning formula has been its cash orientation aimed at lower-income earners, with credit sales contributing less than 15% to the group's revenue.

Said Du Plessis: "They are good in cash retailing, and I think that's where their focus should remain. They know that business quite well. Rather stick into what you're good at, and don't try to be everything to everybody."

Mr Price said as a consequence of the group's current cash holdings, its cash-generative business model and the board's confidence regarding future performance, the dividend cover has been reduced from 1.9 to 1.6 times.

"That's good news for investors," said Tejwani.

Mr Price declared a final dividend of 126.8 cents per share, up 37% from the previous year.

Adapted from Source: Fin24.com, 26 May 2010