Mr Price spurred on by Power acquisition
DURBAN - MR PRICE rose more than 7 percent on the JSE yesterday after the clothing and home goods retail company announced its first acquisition in nearly 30 years.
Mr Price told its investors that it had concluded an agreement to buy high-performing value retailer Power Fashion for an undisclosed amount.
Chief executive Mark Blair said Mr Price and Power Fashion share a similar set of values, which makes this acquisition a great fit.
“Power Fashion was built on a similar entrepreneurial mindset to Mr Price and also offers exceptional value to its customers,” Blair said.
“We both have high-performance cultures and are equally focused on strategic growth.
“Our sufficiently differentiated business models and target customers will enable strong positioning in both the deep-value and fashion value segments of the market.
“We are pleased that we will provide immediate returns to our shareholders, as well as continue to deliver on our respective promises to our customers.”
Power Fashion was founded in the 1950s and is a family-owned apparel retailer based in Durban. The company currently has 170 stores across southern Africa. It is value-focused and cashbased, servicing low to middle-income households.
Jordan Weir, a trader at Citadel, said
Power Fashion fell comfortably within Mr Price’s forward-looking strategy, adding that a great deal of thought had gone into this acquisition.
“Power Fashion has an extremely well-managed business model which excels in efficient cost-management, and this is something that Mr Price will not want to tamper with.
“As its fashion item prices are generally lower than those found in Mr Price stores, the growth opportunities to be found within its segment could be explosive over the longer-term,” Weir said.
The transaction is, however, still subject to competition authority approval in South Africa and eSwatini.
It is expected to come into effect in April 2021 and the transaction will be settled in cash. Lulama Qongqo, an investment analyst at Mergence Investment Managers, said the purchase would be a good addition to the Mr Price portfolio as they are complementary to each other.
Qongqo said it would provide exposure to a cheaper value segment.
“I think this should bode well for the group, given the persistent South African socio-economic conditions. Consumers continue to seek the best value for money and until we have substantial real economic growth per capita, I believe people will downtrade into the value segments that Mr Price and Power Fashion operate in.”
Mr Price said its basic earnings per share declined 34.5 percent to 290.5 cents during the six months to end September 26, while headline earnings per share (Heps) fell 24.8 percent to 333.5c, hurt by the Covid-19 outbreak.
It said the Heps, however, increased by 6 percent after Covid-19 restrictions were eased.
Its online sales surged 71.5 percent from May and account for 2.5 percent of sales.
Both analysts said the group released results that were ahead of expectations.
Qongqo said the numbers were better than expected, especially from the profit trend perspective, while Weir said like many other retailers, pandemic lockdowns did see Mr Price experience a small knock in earnings.
“However, the strategic placement of its stores in convenient locations, together with its resilient growth in market share during the lockdown period, means that its results exceeded most analysts’ expectations to the upside,” he said.
Mr Price shares closed 8.38 percent higher at R169.08 on the JSE yesterday.