- S. African retailer had toughest winter in more than 10 years
- Weak consumer spending, rand depreciation hurt sales
Mr Price Group Ltd. plunged the most in more than seven months after the South African clothing and household-goods retailer said first-half earnings would probably decline after its most challenging winter in more than a decade.
The shares dropped 16 percent to 184.47 rand at the close in Johannesburg, the biggest decline since Jan. 15. Almost 6.4 million shares traded, or 4.8 times the three-month daily average.
“Unseasonally warm weather at the start of winter and higher prices from the weaker rand inhibited sales,” the Durban-based company said in a statement on Wednesday. “There has also been a fundamental shift in consumer spending in South Africa, with higher unemployment and low economic growth significantly dampening consumer confidence and spending.”
It’s unlikely that earnings for the six months through September will exceed the previous year, the company said. The clothing business was particularly hard hit after competitors placed heavy discounts on winter garments and Mr Price probably moved too slowly to mark down its own goods, it added. Woolworths Holdings Ltd., a South African food and clothing retailer that targets higher-income customers than Mr Price, said last week clothing sales had suffered from what Chief Executive Officer Ian Moir called a “horrible, non-existent winter.”
Shares in other South African clothing retailers fell alongside Mr Price. The Foschini Group Ltd. slumped 7.8 percent to 130.71 rand, the steepest drop since June 27. Truworths International Ltd. declined 3.9 percent to 76.15 rand, the lowest closing price since January, 2015.
Mr Price sales for the first 18 weeks of the financial year rose 2.3 percent, including a 30 percent increase in what the company categorizes as other income, mainly from financial services and cellular operations, the company said. Retail sales rose 1 percent.
“The numbers were very, very bad,” Alec Abraham, senior equity analyst at Sasfin Securities, said by phone from Johannesburg. “As far as I can tell their volumes were hit quite significantly.”
Mr Price last year reported net income of 1.08 billion rand ($73.7 million) in the six months through Sept. 26, with sales increasing 9 percent, compared with 15 percent the previous year. The company attributed the slower growth at the time to muted consumer spending and “some poor fashion choices.”
“While the length and depth of the current downturn is at present unclear, the company has successfully negotiated previous negative cycles,” Mr Price said on Wednesday. “The group is responding to the changing economic and competitive environment by focusing on delivering merchandise at exceptional value.”