Clicks surges despite squeeze on consumers’ disposable income
ALTHOUGH consumers in the middle-income sector, who represent the core of Clicks Group customers, have remained under pressure, the company has reported a 9.2% rise in full-year profit, which beat analyst forecasts.
Retailers have come under strain as tightened disposable income as a result of escalating living costs and debt has seen consumers shop less.
Without reducing its margin, Clicks continued to rely on promotional activity to drive sales. The company reported diluted headline earnings per share of 298.6c for the year ended August 31, from 273.4c previously.
A final dividend of 168c was declared, an increase of 10.5%. The BDlive consensus forecast was for diluted headline earnings per share of 295.9c and a dividend of 166c.
Clicks shares, which are primarily held by foreign investors, surged more than 8% to R60.70.
“Consumers are very cautious on spending. They’re spending when they have cash, so you’re seeing a great spike at month-end when people just get paid. We don’t know how they’re going to respond over the important festive trading period. What we do know is that selling price inflation will be held down,” CEO David Kneale said.
The Cape Town-based group reported a 13.6% increase in turnover to R17.5bn and net income grew 9% to R751.2m.
Daniel Isaacs, an equity analyst at 36One Asset Management, said: “They guided for an earnings range a while ago and they’ve come in at the top end of that, so (the) guys were pleasantly surprised. It’s not a strong earnings growth but with such a strained consumer and with what we’re seeing in the retail space, it’s better than expected, especially in the second half, where there was a pick-up.”
The chain grew sales by 8.6%, with stronger sales growth of 10% for the second half.
“We continue to see two trends — the switch to generic medicines up 16.1% and now accounting for over 40% of sales and an increase in self-medication,” Mr Kneale said. “Both are in part the result of efforts by medical aids and consumers to contain costs. We’re endeavouring to optimise these trends by actively switching patients to lower-cost generics, not least to our own Clicks and Unicorn brands and by prompting over-the-counter medicines.”
The group’s Musica chain saw comparable store sales rise by 5.9% in an environment where consumers are shifting their spending to digital formats. Fourteen stores were closed and three more will be shut.
According to professional services firm PwC, retail spending on physical formats will fall at a faster rate than spending on digital will rise, resulting in an annual decline in spending on recorded music.
Retail spending on digital music will rise at an estimated compound annual growth rate of 7.8% in the next five years and will total about R132m in 2017, PwC said. Mr Kneale said there remained a market for physical product even if it was declining.
“We’ll gain market share as the last man standing. One of the growth areas of Musica is technology and accessories, which were up 38% in the last year — that’s speakers and headphones,” Mr Kneale said.
The Body Shop grew turnover by 11.3%, benefiting from four new stores. The group’s UPD wholesale pharmacy business increased turnover 43.9% to R11.5bn. Clicks will open 25 stores and 20-25 dispensaries in the year ahead.