Johannesburg - The health and beauty market remained resilient despite middle-income earners facing financial strains, Clicks Group chief executive David Kneale said yesterday.
He said Clicks was holding on to its market and maintaining its competitive position amid demanding trading conditions, which were having an impact on its middle-income target market.
“The brand’s strong value offer is driving sales growth as the health and beauty markets remain resilient,” he said.
The group, which trades under the Clicks, Body Shop and Musica store chains, reported yesterday that diluted headline earnings a share increased 10.3 percent to R1.574 for the six months to February.
Turnover of R9.3 billion rose by 9.6 percent compared with a year earlier.
Retail sales increased by 7.4 percent, while United Pharmaceutical Distributors (UPD) sales grew by 14.7 percent.
Clicks said its total income increased by 9.1 percent and the total income margin was 10 basis points lower at 27 percent as a result of UPD growing sales at a faster rate than the retail business.
It added that its retail total income margin improved by 40 basis points to 33.4 percent through private label and margin growth and well-managed promotional campaigns.
Kneale said: “It is a solid set of results given very demanding trading conditions.”
He believed that the Clicks chain was experiencing real volume growth in like-for-like stores.
“We view all these things as positive and find ourselves in good shape, despite the fact that we are weathering difficult conditions.”
Clicks has been building a distribution business over the past few years, as well as the wholesale business of its UPD division, a combination that Kneale believes has helped to drive UPD’s growth.
UPD’s turnover growth benefited from sales to its core customers – Clicks and the private hospital groups – and preferred supply chain partner contracts.
UPD has grown its share of the private pharmaceutical market from 25.7 percent to 26.3 percent, with the completion of a new distribution centre in Johannesburg increasing capacity by 50 percent.
Kneale observed that consumers delayed their Christmas shopping for longer than in the previous year.
“This year consumers were very careful on how they spent their money; they bought fewer gifts and bought them later in December than previously.
“We have also noticed that there was an increase in self-medication and also a trend towards lower cost generic medicine.
“In cosmetics, we saw lower-priced brands doing better, with our store private labels reaching almost 20 percent of sales,” Kneale said.
Daniel Isaacs at 36One Asset Management said Clicks’s half-year performance was in line with the market’s expectation.
He added that the results were “okay” taking into account the difficult trading environment, particularly for middle-income consumers, the group’s principal market.
Isaacs believed that Clicks was focusing on and growing its UPD division strongly, which had helped the overall growth number this year. Specifically, new contracts in the UPD business contributed to the strong expansion in turnover.
He noted that Clicks’s private labels were slowly making headway.
“Getting widespread acceptance of a private label in general is a long hard process.”
Kneale said Clicks would also work on raising awareness about new product ranges in its stores, such as GNC, the US-based global leader in branded health and wellness products.
Clicks has an exclusive agreement to sell the products in South Africa. So far, GNC is available at 50 Clicks stores and has its first stand-alone store in Cresta, Johannesburg.
Kneale said a second store would be opened in Cape Town’s V&A Waterfront soon.
Clicks extended its national store footprint to 453, with 333 containing dispensaries and 133 housing clinics.
Its Clubcard loyalty programme grew to 4.3 million members in the six months.
The retailer forecast that its diluted headline earnings a share would grow by between 8 percent and 12 percent for the financial year to August.
The shares rose 0.88 percent to close at R63.05 yesterday.