Clicks Group Ltd., a South African beauty and pharmaceutical retailer, said earnings growth may slow in the second half because of persistent weakness in consumer confidence and investment in stores.
Diluted earnings per share before one-time items are expected to rise between 5 and 10 percent for the full year to the end of August, compared with 8.5 percent growth in the first half of the year, the Cape Town-based company said in a statement today.
“Retail trading will remain challenging through this year,” Chief Executive Officer David Kneale said by phone from Cape Town today. “I see no reason to believe the economy is going to improve or that consumer confidence will return.”
Clicks shares dropped the most in a week and closed 1 percent lower at 57.12 rand in Johannesburg. The stock has slumped 12 percent this year.
South African consumer confidence was at a nine-year low in the first quarter of 2013 amid a 24.9 percent unemployment rate and as rising fuel and electricity costs accelerated inflation to the upper limit of the government’s 3 percent to 6 percent target range.
Net income rose 9.8 percent to 360 million rand ($39.5 million) in the six months through February, the company said. Sales advanced 11 percent to 8.5 billion rand as Clicks increased its promotions. The interim dividend was raised by 10 percent to 48.5 cents per share.
“Consumer spending has been subdued, especially by the middle income customer, which is our core customer,” Kneale said. “They have less money and are looking for more deals, so we’ve increased our promotional activity to increase the number of feet in the stores.” Promotions now account for about 25 percent of total sales, Kneale said. Even so, gross margins have not been diluted, he said.
Clicks plans to spend 335 million rand in the current fiscal year as it invests in automated systems and a new building for its wholesale and distribution UPD unit. The company will also revamps existing stores and increase the number of pharmacies it operates, Kneale said.
Keith Warburton, 55, was named as Clicks chief operating officer, a new position in the company. He was previously chief financial officer from 2005 to 2011, until he resigned “to take a break from the corporate environment,” Clicks said.
“The business will benefit from some-one looking after the day-to-day details, especially in the current economic environment,” Kneale said.