Mr P share price testing short term breakout level following trade update

Key Takeaways:

1. Mr Price Group Limited recorded growth in retail sales and other income (RSOI) of 21.4% to R8.4bn for the first quarter of FY2024. However, excluding the recently acquired Studio 88 Group (S88), RSOI only grew by 1.2% to R7.0bn.
2. The retail sector experienced soft demand in the second half of FY2023, which continued into the first quarter of FY2024. This was aggravated by high levels of loadshedding and rising costs of debt, negatively impacting consumers' disposable income and indebtedness.
3. Despite these challenges, the group's trading performance improved as back-up power solutions were extended to all stores by the end of June 2023. Retail sales for May and June combined increased by 33.0% (excluding S88: 5.6%).
4. The group's retail sales in the Apparel segment grew 29.5% (excluding S88: 1.2%), with Mr Price Apparel, Power Fashion, and S88 reporting positive comparable store sales. The Home segment saw an improvement from a double-digit decline in the previous quarter to a decrease of 1.7%, while the Telecoms segment had sales growth of 11.0%.
5. The growth outlook for the remainder of 2023 is expected to remain muted due to persistent loadshedding and limited improvement in disposable income. Management anticipates a challenging H1 performance, with higher markdowns, lower gross margins from S88, and the impact of acquisitions trading at lower gross margins affecting gross and operating profit growth. However, an improved performance is expected in H2 as loadshedding levels normalize and inventory levels normalize. The focus remains on increasing comparable store sales growth and responsible stock management

Mr Price Group Limited (JSE: MRP) recently released a trading update for the first quarter of the financial year ending 30 March 2024. The company recorded a growth in retail sales and other income (RSOI) of 21.4% to R8.4bn. This includes the contribution from the recently acquired Studio 88 Group (S88). Excluding S88, the RSOI grew 1.2% to R7.0bn.

The retail sector experienced soft demand during the second half of FY2023, which continued into the first quarter of FY2024. This was aggravated by high levels of load shedding, and consumers were negatively impacted by the rising cost of debt after the most recent interest rate increases in March and May 2023. Interest rates have risen 475 basis points since November 2021, reaching their highest level in 14 years.

Despite these challenges, the company reported positive signs. The headline CPI appears to be moderating, with June 2023 CPI receding back within the targeted range. However, food and public transport inflation remain at double-digit levels, placing significant pressure on household disposable income and indebtedness.

The group's new financial year started slowly, but trading performance improved as back-up power solutions were extended to all stores by 30 June 2023. Retail sales for May and June combined increased by 33.0% (excluding S88: 5.6%).

In terms of the group's corporate-owned stores, retail sales grew 21.9% to R8.1bn. Other income increased 8.8% to R293m due to a higher average debtors’ book and interest rates. South African retail sales increased 20.9% to R7.5bn, while non-South African corporate-owned store sales increased 35.9% to R614m.

Looking ahead, the growth outlook both globally and in South Africa for the remainder of 2023 is expected to remain muted. Disposable income is only anticipated to improve significantly during 2024, as inflation moderates and consumers experience interest rate relief. Persistent load shedding continues to hinder economic progress in South Africa.

Despite these challenges, Mr Price Group remains focused on increasing comparable store sales growth and responsible stock management. The group will continue to maximize the contribution from its acquisitions and is confident they will deliver on their strategic ambitions.

In conclusion, Mr Price Group has shown resilience in a challenging retail environment, recording growth in retail sales and other income. The company's proactive measures, such as extending back-up power solutions to all stores, have contributed to improved trading performance. Going forward, the group aims to continue maximizing contributions from its acquisitions and focus on increasing comparable store sales growth and responsible stock management.

Mr Price – trading view

While the long-term price trend for Mr Price remains down, the intraday break above the 14850 level suggests a bullish price reversal in the short to medium term.

A close above 14850 would confirm the breakout and assume 15945 as the next upside resistance target. Failure of the suggested move to 15945 would be considered on a close below the 14180 level.

Traders who are considering long entry will need to balance the risk of the stop / failure distance relative to the reward assumption, which when accounting for costs are more or less equal in size