MRP delivered weak FY23 results, having been caught off-guard by the spike in load-shedding from September 2022. Management has since remedied the situation and the retailer will have 100% backup power from this month. Combined with its ungeared balance sheet, MRP should be well positioned to weather the challenging market conditions ahead.
We think MRP’s value-seeking customers may be more sensitive to price hikes, which makes its GPM more vulnerable to high inflation and the weaker rand.
The slowdown in the Home division may have been exacerbated by increased competition, but we think the declining trend in MRP Home’s chains was evident well before the pandemic. We show how unit sales have declined since FY13, suggesting there may be strategic challenges in this business.
While management is excited about the new Mr Price Kids format, we show that the demographic trends in this segment mean this is not an expanding market and MRP’s growth will have to come from market share gains from competitors. There are several downside risks to this strategy, including higher store costs, fewer cross-selling opportunities and potentially lower trading densities in the Mr Price Apparel stores.
