MRP’s 1H24 results were impacted by a poor first quarter, with loadshedding and a highly promotional market weighing on earnings. We think the low inflation at MRP could be due to the price-sensitivity of its value customers, compelling the retailer to absorb some of the cost inflation, which may have contributed to the GPM contraction.
In Apparel, Power Fashion had the highest sales growth at 22.4% y-y, but this was mostly driven by space, which grew at a similar clip. The core Mr Price Apparel chain’s turnover increased by only 3.9% y-y, which is matched by its space growth. Considering the difficult economic conditions and Mr Price Apparel’s value proposition, we think the chain failed to capitalise on consumers trading down to value.
The Home division’s sales growth continues to falter and we are concerned that the “structural changes” in the market referred to by management may result in structurally lower margins.
The recently acquired Studio 88 diluted GPMs and we observe a worrying build-up of inventory in the chain. Management, however, responded that the stock increase was due to seasonality and a proactive strategy to acquire additional stock to maintain certain competitive pricing.