New Clicks interim earnings up

South African specialist retail group, New Clicks on Thursday reported a 25.8% rise in diluted headline earnings per share to 67.8 cents for the six months ended February from 53.9 cents previously.

An interim distribution of 18.8 cents per share, up from 15 cents before, was approved, comprising a cash dividend of 3.7 cents per share and a distribution out of share premium of 15.1 cents per share in lieu of a dividend.

Turnover from continuing operations increased by 13.1% to R5.64bn, with selling price inflation measured at 3.4% for the six-month period. Retail turnover increased by 10.7% and 8.5% on a comparable store basis, against inflation of 3.7%.

The combined turnover from the group's retail businesses - Clicks, Musica and The Body Shop - increased by 10.9% and by 8.5% on a comparable store basis, against inflation of 3.7%.

UPD increased turnover by 13.6% and experienced inflation of 3.1% for the period.

Retail total income (comprising gross profit and other income) grew by 16.7% to R1.16bn, with UPD's total income up 5.3% to R185 million.

Headline earnings increased 12.0% to R210 million. The results of Discom, the retail business sold at the start of the new financial year in September 2007, are included in the comparative period.

Real growth, despite slowdown

Group chief executive, David Kneale, said New Clicks achieved real sales growth of close to 10% for the period, despite an overall slowdown in consumer spending in the country.

"This performance has been achieved not just in a tougher environment, but also while we have continued to invest in people, processes and stores for the

long-term growth of the business," he said. The retail operating margin improved from 5.9% to 6.3% driven by Clicks, while UPD's margin declined from 3.2% to a more normalised 2.8%.

Operating profit increased 15.2% as a result of higher turnover and the improved margin
management. Inventory continued to be well managed, with stock levels increasing by only 4.9% against turnover growth of 13.1%.

Kneale said New Clicks has benefited from good trading and its ongoing focus on efficient cash and capital management to exceed its medium-term ROE target of 30% in the period.

On the trading performance, flagship brand Clicks increased turnover by 11.1%, showing real sales growth of 7.4%.

The performance was attributable to sales growth of 16.8% in the health category and 13.5% in beauty merchandise, highlighting the defensive nature of Clicks in a tightening economy.

UPD grew turnover by 13.6%, boosted by increased sales to independent pharmacies as well as benefiting from new distribution contracts awarded during the period.

Entertainment specialist Musica experienced strong growth in DVD and gaming sales which contributed to an 8.5% increase in turnover. Musica continued to gain market share, despite a decline in CD sales during the period owing to a lack of popular new local releases.

The Body Shop grew turnover by 19.8%, supported by the success of the Love Your Body loyalty programme and new stores openings.

More stores planned

After opening 15 new stores and seven pharmacies in the first half, the group plans to open 10 Clicks stores and a further 24 dispensaries, nine Musica outlets and one store for The Body Shop in the remainder of the financial year.

"By year end Clicks will have between 150 and 160 pharmacies nationally," he added.

Discussing the group's prospects, Kneale said the trading environment is expected to become more challenging with increasing pressures on consumer expenditure.

"However, New Clicks is primarily a defensive business which is proving fairly resilient in the current economic climate. Sales for the first two months of the new financial year have continued in line with the performance for the first half."

Kneale said in the absence of any unforeseen factors in the macro-economy and any marked deterioration in the trading environment, New Clicks expects diluted headline earnings per share to increase by between 20% and 30% for the full financial year to end August 2008.

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