Budget-friendly model helps Mr Price’s share price outperform rivals

Mr Price stands out as one of the best-performing stocks this year, outpacing its closest clothing rivals as hard-pressed consumers flock to its budget-friendly outlets while import duties on ultralow-cost Asian competitors level the playing field.

Shares in the company have skyrocketed by almost 50% in the year to date, outperforming TFG and Truworths, which have gained 25% and 30%, respectively.

The consumer shift towards budget-friendly retailers drives this growth, as people seek affordable options amid job losses, higher interest rates, and increased personal debt, analysts said.

DebtBusters’ latest report reveals that SA’s household debt to nominal disposable income is about 62%. According to a recent Pay Curve study, the surge in the cost of living has led to consumers running out of cash mid-month, forcing them to seek financial relief by accessing their wages early.

Investment analyst Chris Gilmour said Mr Price operated as a low-end retailer with some upscale elements, such as Yuppiechef. It outperformed Truworths because its overall pricing is significantly lower, which aligns well with the challenging consumer environment. Mr Price had been capturing market share for years, aided by strategic acquisitions such as Studio 88.

“It is mainly a cash business, with only really Milady’s being a credit-orientated chain within the group. In this regard, it competes head-on with TFG, which is also mainly cash[-based] these days. Truworths is mainly credit[-based],” Gilmour said.

Gilmour said that until recently all SA clothing retailers, including Mr Price, faced fierce competition from Shein and Temu. However, with the SA Revenue Service’s recent announcement that these Asian retailers will now face higher import duties plus VAT, the competitive landscape has been levelled.

“As long as SA has low economic growth, Mr Price will do well and continue to take market share,” Gilmour said. 

Higher multiple

In its annual financial statements, Mr Price reported a 16% increase in revenue, while TFG posted an 8.9% rise and Truworths an 8.5% increase.

Investment research head at FNB Wealth and Investments Chantal Marx said: “Prior to the recent run-up in the share price, Mr Price’s stock underperformed TFG and Truworths. The main reasons … were that it was trading at a comparatively higher multiple (so it was regarded as more expensive) and it has a very high allocation to cash sales (as opposed to credit sales).

“The later we get into an interest rate hiking cycle or a credit cycle, the more likely it becomes that consumers struggle to pay back the credit they had taken on earlier. This results in higher bad debts — something that could be perceived to be an issue for TFG and Truworths but not so much for Mr Price as it has very low credit sales,” she said. 

Moreover, Mr Price will benefit from “trading down” by consumers with a higher living standard measure (LSM) at the expense of TFG and Truworths. This may explain part of the outperformance year to date.

“Additionally, the company seems to have successfully bedded down its new acquisitions (Studio 88, Power Fashion, Yuppiechef — which have also helped diversify the business) and has seen early success in newer areas such as kids and baby. This has again prompted investors to reconsider if it should not trade at a larger premium to its peers, as was previously the case,” she said, adding that FNB liked Mr Price’s stock from a long-term investment perspective.

She said the management team was focused on profitable growth and the business would benefit in the near to medium term from a cyclical upswing as interest rates and inflation fall, a potential windfall as the two-pot system comes into effect, and hopefully a structural step-up in growth as the country’s reform process accelerates.

MajavuN@businesslive.co.za