South African retail giant, Mr Price, recently reported an annual revenue loss of about R1 billion for the fiscal year ending 1 April 2023. The retailer pointed to the crippling load shedding experienced in the second half of the fiscal year as the major culprit for this significant setback.
A Dark Shadow over Festive Sales
The load shedding crisis cast a shadow over the festive season, a time usually marked by bustling sales for the retail chain. As of September 2022, a mere 37% of Mr Price’s core businesses had access to backup power. Factoring in acquisitions, this figure rose to 58%.
Mr Price, with its conservative approach to backup power investment as a value retailer, was caught off guard when load shedding spiralled out of control after September 2022. The resultant power cuts from September 2022 to March 2023 surpassed the cumulative load shedding experienced over the previous 15 years.
- The retailer lost an estimated 318,000 trading hours.
- These lost hours equate to an approximate R1 billion loss in revenue.
Indirect Impact of Load Shedding
Beyond the direct loss in trading hours, the load shedding crisis also affected consumer shopping behaviour, driving down consumer confidence and increasing levels of unsold stock.
Moving Towards Energy Continuity
Despite these challenges, Mr Price remains resilient, unveiling plans to invest R220 million into backup power. The retail group expects 100% store coverage by June 2023.
- Stores with post-backup power systems have already shown an average 5% sales growth differential.
- The majority of these backup systems are inverters, capable of maintaining 70% lighting levels during stage 8 load shedding.
The company’s head office and main distribution centre can now also remain fully operational during power cuts.
Financial Performance Amidst Challenges
Despite the impact of load shedding, Mr Price still managed to grow its revenue by 17% to R32.9 billion. This figure includes the 70% acquisition of the Studio 88 Group in October 2022.
However, the festive season load shedding hit the company’s EBITDA, with a modest increase of only 5.4% to R7.2 billion. The group’s headline earnings per share also took a 6.0% dip, ending at 1,205.7 cents per share.
A final dividend of 447.1 cents per share was declared, maintaining its 63% payout ratio. This was sourced from income reserves.
- Revenue: R32.9 billion (+17%)
- EBITDA: R7.2 billion (+5.4%)
- Operating profit: R4.9 billion (+0.5%)
- Headline earnings per share: 1,205.7c (-6.0%)
- Final dividend per share: 447.1c
Mr Price foresees a challenging trading environment for the first half of FY2024, largely due to persistent inflation and high inventory levels. However, the retailer is optimistic about improvements from September 2023, with reduced power outages, balanced inventory levels, and abating inflation and interest rates.
Despite the milder-than-expected winter load shedding, potential escalation in winter could still disrupt the retail cycle.
Reflecting on these challenges, CEO Mark Blair expressed confidence in the resilience of his team. He highlighted the company’s significant investments in acquisitions, capex, and dividends over the past two fiscal years, all while maintaining an unencumbered balance sheet.