WOOLIES:  4,734   +33 (+0.70%)  25/04/2019 00:00

Budget retailer Mr Price hit by slowdown in South Africa

* Shares down more than 13 pct

* Q3 total sales up 2 pct vs 8.5 pct growth in Q3 2017

* Mr Price expects Q4 to remain very challenging (Adds share drop, details, quotes)

By Nqobile Dludla

JOHANNESBURG, Jan 17 (Reuters) - Shares in South African budget clothing and furniture retailer, Mr Price Group Ltd , tumbled on Thursday after it reported a sharp slowdown in sales growth and warned of a challenging final quarter.

The trading update followed a profit warning from department store operator Woolworths Holdings on Wednesday, pointing to a broader malaise and a gloomy outlook for the retail company results season.

An increase in value-added tax, a rise in unemployment and inflation levels, coupled with higher fuel prices and an interest rate increase in November have all conspired to reduce spending power in South Africa.

"The trading environment in Q4 is expected to remain very challenging," the firm said.

During the three-months ended Dec.29, group retail sales and other income grew 3.5 percent to 7.1 billion rand ($517 million), while total sales of 6.7 billion rand were 2 percent higher. This compared with an 8.5 percent increase in total sales in the corresponding period.

Comparable store sales were down 0.8 percent.

That result sent the shares tumbling 13.10 percent at 0919 GMT, touching a 2-1/2-month low, while the broader market fell 0.95 percent.

The Durban-based company pointed to high levels of competitor price discounting and promotional activity over the quarter, but said its gross margin percentage improved slightly on the prior year in all divisions.

The retailer said Black Friday sales were lower while the Christmas shopping season was impacted by the later start to the school holidays.

Sales of its biggest apparel division, inched up 0.4 percent compared with 11.3 percent sales growth in the same period last year.

"Global and domestic market uncertainty continues and improvements in the economy and consumer health are likely to be muted until the risk events settle and the general elections in South Africa take place in May 2019," the company said.

($1 = 13.7234 rand) (Reporting by Nqobile Dludla; Editing by Subhranshu Sahu and Elaine Hardcastle)

2019-01-17 11:30:12

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