Clicks Group's core health and beauty markets, as well as its business model, have proven to be resilient despite the fact that load shedding continues to have a negative impact on consumer confidence and trading, according to CEO Vikesh Ramsunder.
The group announced its interim results for the six months to February 2019 on Wednesday. It reported a 13.2% increase in diluted headline earnings per share to 300.1 cents over the period.
The group said in a statement that this was driven by strong health and beauty sales in an environment of low inflation, subdued economic growth and constrained consumer spending.
The interim dividend was increased by 15.1% to 118 cents per share.
Group turnover rose by 6.2% to R15.3bn. The operating profit grew by 11.3% to R1bn, with the operating margin expanding by 30 basis points to 6.8% as the retail and distribution businesses both improved operating margins.
Ramsunder said despite headwinds, the group has grown market share, expanded margins, generated strong cash flows and increased payouts to shareholders.
Retail health and beauty sales grew by 8.5%, with good volume growth and market share gains across most product categories.
"This growth was mainly due to competitive pricing and appealing promotions in the current constrained consumer environment, with promotional sales increasing by 10.3% and accounting for 38% of the turnover in Clicks," he said.
Clicks expanded its store footprint to 680 with the opening of 17 stores in the past six months. The online store is the chain's fastest growing store, reflecting customers' need for convenience as well as the growing trend to online shopping in South Africa.
Eighteen new pharmacies were opened to extend the pharmacy network to 528. Clicks increased its share of the retail pharmacy market from 23.0% to 23.8% at the end of February 2019 and plans to grow this to 30% in the long term.
UPD, the group's pharmaceutical distributor, performed strongly and increased operating profit by 27.2%. Total turnover managed by UPD, which combines wholesale and bulk distribution, grew by 21.9% to R10.2bn.
The business increased its bulk distribution portfolio to 24 clients by gaining four new contracts over the past year. UPD increased wholesale market share from 25.4% to 26.0%.
Cash generated by operations increased by 14% to R1.3bn for the six months. More than R680m was returned to shareholders in dividends and share buy-backs.
Ramsunder said the group is planning capital investment of R700m for the year, split across the store and pharmacy network, and group infrastructure to support the increased scale of the business.
February 2019 saw the final vesting of the Clicks Group's broad-based BEE employee share ownership scheme. Over the past two years R2.8bn has been paid out to staff - an average of R355 000 per participant.
Discussing the outlook for the remainder of the 2019 financial year, Ramsunder said macro-economic conditions are not likely to improve in the short to medium term, and "we are expecting the trading environment to remain challenging in the second half".
In his view, Clicks and UPD are both well positioned for sustained growth and we are forecasting an increase in diluted HEPS of between 10% and 15% for the full financial year.