South Africa’s Mr Price jumps on better than expected profit

By Nqobile Dludla

JOHANNESBURG (Reuters) -Mr Price shares jumped 11% on Thursday after the South African budget fashion retailer posted a smaller than expected drop in first-half profit and forecast an improved performance in the second half, which includes holiday trade.

Shares in the group, which also sells homewares and sports clothing and equipment, hit a 9-1/2 month high of 164 rand.

Mr Price said its first-half performance was hit by power cuts, a highly promotional retail environment and the impact of double-digit inflation in food and transport on its value-focussed customers.

Casparus Treurnicht, portfolio manager at Gryphon Asset Management, said the market had expected far worse news after a gloomy July trading update.

“Investors seem to project that one of the most difficult periods in Mr Price’s life is over following the double bottom seen in the price lately,” he added.

Wayne McCurrie, portfolio manager with FNB, said the market was also reacting to “the good momentum carried into the third quarter,” as Mr Price’s November sales had shown an improvement.

Mr Price reported headline earnings per share of 449.9 cents for the 26 weeks ended Sept. 30, down 9.3% from 496 cents a year earlier.

Its gross profit margin declined by 170 basis points to 38.6%, impacted by higher markdowns required to clear excess inventory, while retail sales, excluding acquisitions, grew 3.8%. Comparable store sales fell 0.8% in the half year.

Chief Executive Mark Blair told investors that although consumers were likely to remain under pressure into 2024, with electricity supply risks remaining and local port and logistics instability increasing, “we’re cautious, but optimistic.”

The group expects an improved sales trend and gross profit margin levels in the second half, finance chief Praneel Nundkumar said.

Blair wants to protect margins during the “Golden Quarter”, or final holiday quarter of the year, by not offering deep promotions, he said.

($1 = 18.3689 rand)

(Reporting by Nqobile DludlEditing by Mrigank Dhaniwala and Mark Potter)