Clicks sees tough times persisting for while longer

CLICKS Group on Thursday warned in its results for the six months ended February that the headwinds of constrained consumer spending and squeezed margins were likely to persist.

"I cant see any reason why retail trading conditions are going to change at all in the remainder of this calendar year," CE David Kneale said. "The economy is stuck in a pretty low gear."

Like other retailers, the company is faced with consumers who have become more cautious on spending as a result of rising household debt and escalating cost pressures.

Clicks reported diluted headline earning per share of 142.7c from 131.5c in the same period last year. Turnover increased 11.4% to R8.5bn, with selling price inflation of 2 % for the period.

Equity analyst Daniel Isaacs of 36One Asset Management said that overall, the groups results were disappointing. "They (grew ) diluted earnings 8.5%, which is not great, especially for the price that the stock is trading at.

"The results reflect a weak consumer, low inflation and high-cost growth. They mention that pharmacy costs grew 25%, which is quite significant."

Turnover growth of 7% in the Clicks chain was driven by increased promotional activity. "In this environment, to move the volumes you really have to pull consumers into stores, and one way to do this is by offering promotions," Mr Isaacs said.

The groups Musica chain increased operating profit 27.3%, in a declining CD and DVD market where consumers are shifting their spending to digital formats. Over the period, eight Musica stores were closed.

"While I think that the market for sales of physical CDs and DVDs will continue to shrink, for a very long time there will still be a market where people will want to buy a physical product," Mr Kneale said. "Musicas strategy is to gain market share and to be the last man standing, and at the same time introduce other new products that help people access music like headphones and speakers ."

According to professional services firm PwC, spending on physical music formats is expected to drop at a 10% compound annual rate to R746m in 2016 from R1.3bn in 2011.

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Clicks sees tough times persisting for while longer