MR PRICE'S SLOWER APPROACH TO LOAD SHEDDING PREPAREDNESS PROVES COSTLY IN 2023
The retailer suffers a significant revenue loss due to inadequate backup power coverage during increased load shedding. Mr Price, a renowned value retailer, faced the repercussions of its somewhat slower approach to insulating itself from the threat of load shedding in 2023. On Thursday, the company disclosed that having backup power available in just over
MR PRICE'S SLOWER APPROACH TO LOAD SHEDDING PREPAREDNESS PROVES COSTLY IN 2023
The retailer suffers a significant revenue loss due to inadequate backup power coverage during increased load shedding.
Mr Price, a renowned value retailer, faced the repercussions of its somewhat slower approach to insulating itself from the threat of load shedding in 2023. On Thursday, the company disclosed that having backup power available in just over a third of its store base contributed to a staggering loss of over R1 billion in revenue.
Despite a substantial increase in its store base, which included the acquisition of Studio 88, the group managed to achieve a 17% lift in revenue, reaching R32.9 billion for the year ending April 1. However, core profit only experienced a modest growth of 5.4% to R7.2 billion.
The retailer, valued at approximately R35 billion on the JSE, cited a “significant increase” in load shedding during the second half of the year as a major setback, heavily impacting crucial trading months, including the festive season.
By the end of September, only 37% of Mr Price’s core business had backup power, as the company had adopted a conservative approach to investing in this area. They believed that the historical implementation of load shedding had been manageable until September 2022. If acquisitions were taken into account, the store footprint with backup power reached 58%.
In contrast, Foschini-owner TFG had backup power installed in stores covering 68% of its South African turnover as of September last year. Mr Price stated that, following an R220 million investment in backup solutions, it anticipates achieving 100% coverage by the end of June. The company already noted positive effects on average sales growth since the implementation.
Mr Price revealed that the cumulative impact of load shedding between September and March resulted in an estimated annual loss of 318,000 trading hours or R1 billion in revenue. This quantum of load shedding exceeded the total experienced in the previous 15 years combined.
Apart from load shedding, rising inflation and interest rates exerted additional pressure on consumers, leading to a decline in forecasted sales across the clothing sector. Consequently, increased promotional activity became prevalent.
Despite maintaining its payout ratio, the company’s total dividend experienced a 5.9% decline, amounting to 759.6 cents. However, it is worth noting that Mr Price remains free of financing debt.
During this period, Mr Price acquired a 70% stake in the retail chain Studio 88, significantly expanding its store base in 2023. The total store footprint increased by 1,000 stores to a sum of 2,702, with 171 new stores being added to its core business.
Looking ahead, Mr Price expects challenging trading conditions to persist throughout the first half of the 2024 financial year. However, a recovery is anticipated from September 2023 as power outages will be factored into the base, and inventory levels will be adjusted to desired levels. The company also hopes for relief from the high inflation and interest rates that have characterized the market.
In morning trading, the group’s shares displayed a 3% increase. Nonetheless, over the past year, the shares have witnessed a decline of nearly a quarter.
