The apparel division, which accounts for around 70% of group sales has been weighed down by a weak performance in Mr P Apparel and Milady’s. Mr P Apparel was said to have been negatively affected by the late onset of winter and currency fluctuations, while Milady’s finds excuse for its drag on sales through a repositioning in the “merchandise fashion pitch to refocus on its core customer”. Mr Price Sport did however perform relatively well for the apparel division, with sales increasing by 13.3%.
The weak performance in the apparel division follows on from weak sales numbers realised by sector companions Truworths, Woolworths and Foschini, highlighting a tough period for clothing retail in the current weak consumer environment.
Mr Price remains extremely cash generative, providing an enviable return on average equity to shareholders. However, the market has become accustomed to year after year earnings growth, which in the short term has reverted to a double digit earnings contraction. While in part, the difficult interim period can be attributed to a weak consumer environment (evident in fellow sector companion’s softer clothing sales), the extent to which the competitive landscape may be contributing to the decline in apparel sales is uncertain.
The group’s outlook for the remainder of the year provides little confidence that the short term earnings decline will reverse course, as the lottery of this year’s Christmas trading period has been cited as the decisive factor therein.
However, the company has seen its share price discount by more than half its value since its highs in 2015, while dropping more than 45% since the quarterly trading update (which had forewarned of a challenging interim period). With this in mind it does feel that perhaps the downside in the share may be capitulating at present. A Thompsons Reuters poll of 13 analysts maintain an average rating of hold for The Mr Price Group.