Charlotte Mathews

Consumer Industries Editor

CAPE TOWN — Clothing and homeware retailer Mr Price Group plans to increase its trading space another 50% by 2010.

The group said yesterday that its decision followed positive results from various store formats where space had already been expanded in the past few years.

At the end of its 2002 financial year, the group decided to extend the trading space in its cash division, which includes Mr Price Weekend Material, Mr Price Home and Sheet Street, by 84% to 327000 gross square metres.

CEO Alastair McArthur said the three-year store expansion programme was very successful. The expansions during the past year had generated an annualised marginal return of 75% on operating assets.

Growth in trading space in the next five years, together with productivity initiatives in systems and logistics, "will provide the momentum for significant earnings growth", he said.

Total revenue rose 13% to R4,6bn in the year to March compared with last year. Management’s target is R6bn annual revenue by 2007.

Comparable store sales growth was 10%, with deflation of 8% in the first half of the year reducing gradually to below 1% by the end of the year. McArthur said the group expected about 5% inflation in clothing in the current financial year.

The operating margin on comparable businesses rose to 9,1% from 7,4%, approaching management’s target of a margin of 10% by the 2007 financial year. New targets had been set, to achieve turnover of R10bn and a further improvement in operating margin by 2010.

Headline earnings rose 35% to 120,4c a share and the dividend was increased by 71% to 60c a share on a slightly reduced dividend cover.

Imara SP Reid analyst Steve Meintjies said in a note to clients that there was "significant positive surprise" in the results.

Growth in sales and profits, including from trading space added in the past year, with lower shrinkage and an increase in return on equity to 28,2% from 24,7%, showed a general picture of good management.

At the cash division, which contributes about three-quarters of group sales and profit, revenue increased 14% and operating profit rose 51%.

McArthur said the two home chains were the dominant players in the speciality retail sector and there were still significant growth opportunities for them.

The group has also offered credit, on a test basis in some stores, to customers of Mr Price Weekend Material and Mr Price Home, and will extend the test to other stores.

The credit division, which includes Miladys, the Hub and Galaxy, grew revenue by 11% and operating profit by 20%.

McArthur said the group was making progress with several new retail concepts and would test the first one in August. "While we have plenty of growth and profit potential in our existing business, we are looking for additional value concepts capable of being rapidly rolled out in future years."