The strong positive market reaction following MRP’s 1H25 results seemed to be sparked by its high turnover growth in the first six weeks of 2H25 and management’s optimistic outlook for the period ahead. However, we think the sales momentum could moderate as it comes up against a high base, with MRP’s sales growth at 15.5% y-y in December 2023.
We note the rapid space expansion in some chains without a commensurate rise in turnover. Power Fashion’s sales growth of 6.6% y-y was achieved with space expansion of c. 9.6% y-y, while Studio 88 delivered sales growth of 4.5% y-y despite increasing its footprint by 5.1% y-y. The core Mr Price apparel chain achieved a sales increase of 6.3% y-y with space growth of 6.9% y-y. These trends imply that most apparel chains are experiencing a decline in trading density, in our view.
The company’s aggressive space growth is driving high cost expansion (management guided for higher expense growth in 2H25), and we think there is a risk that MRP may experience negative operating leverage.
MRP’s inventories increased by 15.3% y-y in 1H25, due to the early arrival of stock to mitigate a possible supply-chain disruption. However, stock days are almost double the levels seen in 1H21 and 1H22, with inventory now at a record R9.0bn. Moreover, stock provision was only 6.1% in 1H25, compared to an average provision of 7.9% ahead of the key festive season in recent years. When the provision was at a low level of 5.4% in 1H23, MRP reported significant markdowns six months later, with its GPM falling by 150bps.
We compare the apparel retailers’ capital management over the past five years, noting the MRP and TRU had the lowest capex over this period. MRP, however, invested the most in acquisitions.