Mr Price (MRP) – Acquisitive growth

Mr Price (MRP) delivered strong results for FY22, partly boosted by acquisitions and a low base in the early part of the comparative FY21 period.
There is a growing appetite for acquisitions among South African retailers and we argue that, having not had much success in exporting their brands to foreign markets, local acquisitions are left as a compelling option.
Due to MRP’s planned R3.3bn acquisition of Studio 88, we analyse the performance of the target company. Over the past decade, Studio 88’s performance has been outstanding, but we believe this may have been aided by fortuitous timing, as it has coincided with Edgars’ collapse and the growing athleisure trend. We show that Studio 88’s high growth since 2012 is likely to have been due to market share gains from Edgars. Studio 88’s store sales have averaged only a 1.0% CAGR over this period, with topline growth mainly coming from new store openings. The Studio 88 chain has overtaken TFG’s Totalsports as the biggest standalone athleisure store in SA in terms of footprint, but there are signs of saturation in other sports chains as new store openings dwindle. The key question, in our view, is what Studio 88’s growth drivers will be going forward, considering the athleisure trend and that market share gains from Edgars are now in the base. We think the double-digit growth recorded by Studio 88 over the past decade may be difficult to sustain.
MRP’s disclosure has become more opaque, providing less segmental detail than before. This is disappointing, coming at a time when MRP is making more acquisitions, making the underlying trends of the traditional MRP divisions more difficult to assess, in our view.