Both the Apparel and Home divisions’ trading densities registered low CAGRs over the past four years and, adjusted for inflation, are well below those recorded before the pandemic in 1H19.
Credit sales growth is accelerating and the lower impairment provision, at 7.9%, is perplexing given management noted that the roll-rates between stages are showing early signs of deterioration and that they expect collection targets to become increasingly challenging. We think there is a risk that bad debt and the impairment provision may increase by year-end.
Capex spend will ramp up in 2H23 and MRP plans to grow store space substantially. Some South African retailers have intensified their investment in store growth, and we are concerned that the weak economic environment, undermined by loadshedding and low job growth, may result in lower trading densities, which could dilute margins.
MRP’s cash reserves will be temporarily depleted by the Studio 88 acquisition and we think this may restrict management from pursuing more acquisitions in the short term.