JSE-listed clothing and home goods retailer Mr Price reported a 54% rise in credit applications and a 23.6% increase in credit sales to R3.7 billion for the year ended April 2, 2022, as new customers show a greater appetite for credit and existing customers. spend more.
Despite soaring credit demand as more consumers face ongoing cost pressures, the retailer says that given the tightening credit environment, it remains cautious and committed to maintaining its credit approval rate within the group’s tolerance levels. The credit approval rating for the current period was maintained at 33.1%.
With that in mind, the group said it has no plans to roll out credit options for its newly acquired businesses, Yuppiechef and Power Fashion, for now or at least not next year.
“In a low-margin business, we don’t want to increase sales on credit and then absorb a bad debt write-off on a low-margin business, that’s just lousy formula,” says CEO Mark Blair.
“Yuppiechef, on the other hand, with a growing margin business, with a high-end, high-income customer – that’s potentially an area where we could look at credit…
“While this may be an opportunity all the way, I can safely say that for the next 12 months it is not on our radar to bring huge credit to this company,” he adds. .
ETF Wealth and Investments portfolio manager Wayne McCurrie told Moneyweb that in the current inflationary environment – although Mr. Price is a largely cash-based business – it will be wise to keep an eye on the numbers for group credit sales for fiscal 2023 as more consumers may begin to use credit as a crutch to supplement dwindling cash.
“Look, you have to be very careful about extending credit now because consumers might afford it, but interest rates are going up and you might be under pressure,” McCurrie says.
Cash sales represented 86.1% of the group’s retail sales at the end of the year, with the group maintaining a 26.4% growth in cash sales. The sale of a total of 276 million units during the period represents an increase of 35.3% compared to the previous period.
Power Fashion Expansion
The fashion retailer announced plans to open 500 Power Fashion stores across the country by 2026. Mr Price acquired the value retailer brand, which was initially based in Durban, in November 2020.
So far, the group has opened 36 new stores during the period, increasing the value fashion retailer’s visibility by 20.6%.
Analysts said Mr Price has set himself a very ambitious target given that the brand exists in a very competitive market segment, having to compete with giants like Pepkor’s Pep and Ackermans brands as well as the Foschini Group’s Jet brand.
Read: Mr Price hits 52-week high as R1.6bn Power Fashion acquisition approved
“I have to admit I gulped a bit when I heard 500 because basically they plan to double the number of stores – which I think is very ambitious,” said financial analyst Alec Abraham. at Sasfin, at Moneyweb.
“You [Mr Price] come up against a very strong player in the market, Pep and Ackermans, they are very strong players in the market, and they are also very good value for money – maybe not as cutting edge as Power Fashion – but I think a very compelling value for this end of the market,” adds Abraham.
Expressing similar sentiments, McCurrie said: “That’s very ambitious, 500 stores is a big number. But I trust Mr. Price’s management, you know – they’ve proven themselves time and time again over many years by making sound decisions.
“So if they think it’s doable – I think it’s aggressive – but if they think it’s doable, I’ll give them the benefit of the doubt.”
Expected volatility for FY2023
Heading into the new fiscal year, Mr. Price expects many of the challenges he faced in fiscal 2022 — like global supply chain disruptions, rising inflation and interest rate hikes – persist and put additional pressure on business and the consumer.
The group adds that it expects to see single-digit commodity inflation in the 2023 period.
Excluding its Power Fashion and Yuppiechef acquisitions, the group manages to contain the inflation of its selling prices to 5.5%.
Despite the challenges the group faced during the period, it maintained strong profit growth, with earnings per share (Heps) for the full year ended April 2022 increasing by 20.1% to 1,282 .1 cents.
Total revenue rose 23% to R28.1 billion, while retail sales rose 26% to R26.7 billion.
The retailer declared a final dividend of 524.9 cents, 13.4% higher than a year earlier.