• Another rather disappointing set of results, impacted by the various   levels of Covid-19 restrictions, which had a marked effect on merchandise   sales.

  • The decline of footfall   in malls was significant relative to that of convenience centers, as shopping   behavior changed dramatically due to the pandemic, which kept customers away   from the big box stores in the large malls.

  • This is amply   illustrated by figures for the month of May where the decline in retail sales   in malls was 11.1%, whereas in convenience centers sales increased by 9.7%.

  • The restrictions on   non-essential sales of products such as higher margin beauty merchandise,   lower foot traffic, and fewer cold and flu cases resulted in lower dispensary   sales. From a group perspective the period of March 27th to April 30th   resulted in a major meltdown in sales by 24.9%. This recovered to a positive   like-for-like sales growth of 3.1% for the period from June 1st to August   15th.

  • The major positive was   the robust growth in online orders by 344%, in line with its global peers.   Covid-19 has accelerated the pace of change to digital channels by 3-5 years,   according to Dis–Chem at the recent results presentation.

  • Revenue growth of 12% -   with retail up 11%, and wholesale up by 14%, resulted in total income   increasing 10%. However, with expenses climbing 14.6% and financing costs   rising 10%, earnings per share declined from 83.8 cents to 69.6 cents.

  • A major expansion of   stores pre-the lockdown, gross profit margin pressures due to Covid-19 changes in the sales mix, and lower margin merchandise sales, as   well as a competitive operating environment contributed to a poor set of   results. The purchase of Baby City is an attempt to expand into higher margin   retailing with synergies being part of the rationale for the deal.

  • The market needs to see a normalization of margins, and an ongoing reduction in   operating costs, as well as a slow-down in expansion plans before it can be   considered for portfolios. The share has underperformed Clicks since its   listing, and needs to show a turnaround before an investment case can be made   for the stock.