Mr Price shares rally on Q1 trading update

Key Takeaways:

1. Retail Sales Growth: The group recorded a 4.6% increase in retail sales to R8.5bn for the first quarter ending 29 June 2024
2. Segment Performance: All trading segments showed positive sales trends, with the Apparel segment growing by 4.4%, the Home segment by 3.7%, and the Telecoms segment by 13.3%.
3. Operating Environment and Consumer Sentiment: High interest rates, increasing debt, and elevated food inflation negatively impacted household finances. However, positive consumer sentiment emerged in June 2024 due to a favorable election outcome and improved political stability following the formation of a Government of National Unity.
4. Sales and Store Footprint: Cash sales increased by 5.2% and accounted for 87.5% of total retail sales, while credit sales saw a marginal increase of 0.3%. The group expanded its store footprint by 35 stores
5. Future Outlook: Management remains focused on profitable market share gains and is prepared for potential supply chain disruptions. Medium-term consumer recovery is expected to benefit from lower inflation, interest rate cuts, and a new retirement system, with these effects likely becoming more pronounced towards the end of 2024 and into 2025.

Retail Sales Performance in Q1 2024

During the first quarter, from 31 March to 29 June 2024, the group demonstrated impressive retail sales growth despite challenging market conditions. Retail sales grew by 4.6%, reaching R8.5bn, significantly outperforming the total market's slight decline of 0.2%. This growth enabled the group to gain 90 basis points of market share, marking 11 consecutive months of market share gains. The group cited various economic factors such as high interest rates, increasing debt, and elevated food inflation that pressured household finances, yet managed to accelerate sales growth in June to 12.7%.

Strategic Focus on Profitability and Market Share

The group's focus on profitability was evident as it recorded gross margin increases across all trading segments by achieving more full-priced merchandise sales and reducing markdowns. These strategic moves helped support its market share gains. All segments, including Apparel, Homeware, and Telecoms, showed robust performance. The Apparel segment grew by 4.4% for the quarter and surged to 13.6% growth in June, driven by Mr Price Apparel, which has gained market share for 11 consecutive months. Meanwhile, the Telecoms segment grew by 13.3%, supported by further expansion into standalone Mr Price Cellular stores.

Economic Outlook and Strategic Positioning

Despite a cautiously optimistic outlook due to a favorable election outcome and over 100 days without loadshedding, the group anticipates continued consumer challenges until key relief factors, such as lower inflation and interest rate cuts, take effect towards the end of 2024 and into 2025. Management remains focused on maintaining profitable market share gains and positioning its brands to benefit from the anticipated consumer recovery in the medium term. With a strong emphasis on supply chain management, the group is well-prepared for potential disruptions, ensuring timely stock arrivals for the festive trading period.

Mr Price – technical analysis

The long term trend for Mr Price remains up. In the short term we see the price consolidating between levels 19780 (support) and 21365 (resistance).

The long term uptrend suggests keeping a long bias to trades on the stock. Traders might prefer to look for long entry on a bullish price reversal closer to the 19780 or 18780 support levels before targeting a move back towards the high at 21365.