Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Clicks Group Ltd (CLCGY, Financial) reported a strong financial performance with diluted headline earnings per share up 14.3%, aligning with market expectations.
- The company expanded its store and pharmacy network, increasing Clicks store count to 936 and pharmacy count to 720, demonstrating growth in its retail footprint.
- Clicks Group Ltd (CLCGY) achieved market share gains across all core retail categories, leveraging its positioning as a value retailer.
- The company made significant investments in sustainability, increasing renewable energy generation from 3.4% to 4.5% of total consumption.
- Clicks Group Ltd (CLCGY) maintained a strong cash flow, generating ZAR6 billion in cash inflows and returning over ZAR2.5 billion to shareholders through dividends and share buybacks.
Negative Points
- The pharmacy expansion was hindered by licensing issues, resulting in fewer new pharmacies than planned, although the issue has been resolved.
- Retail turnover growth slowed slightly in the second half due to the anniversary of prior year acquisitions and delayed pharmacy rollouts.
- The UPD division experienced muted growth for the year, despite a better performance in the second half.
- Inventory levels increased, with retail stock days rising by one day and UPD stock days increasing due to high levels of unicorn stock.
- The company faced cost pressures from load shedding and higher electricity costs, although these were partially mitigated by investments in solar energy.
Q & A Highlights
Q: Can you provide some color on post-year-end trade and inflation guidance?
A: Gordon Traill, CFO, mentioned that the SAP increase granted in January will impact the first half of FY24 and FY25, leading to higher inflation on the pharmaceutical side. Retail inflation is expected to moderate, resulting in overall lower inflation next year compared to this year. Bertina Engelbrecht, CEO, added that improved consumer confidence and increased purchasing from hospitals are positive indicators.
Q: Why was the store guidance lowered from 50-55 per annum to 40-50?
A: Gordon Traill explained that the 50-55 target was specific to FY24. The medium-term target remains at 40-50 stores per year, but they are open to exceeding this if opportunities arise.
Q: How will the resumption of pharmacy rollouts affect total income or trading margins?
A: Gordon Traill noted that opening new pharmacies boosts front shop sales in existing stores. Private label exclusives help support margin dilution from new pharmacies. Bertina Engelbrecht expressed confidence in managing this process, as reflected in their upward guidance for retail trading margins.
Q: Why hasn't Unicorn been classified as a discontinued operation, and what does its disposal mean for private label penetration?
A: Gordon Traill stated that Unicorn was immaterial to the group, and they still own the Unicorn brand, which continues to perform well in the market. Bertina Engelbrecht highlighted the positive market reception of Unicorn products post-resolution.
Q: How will the rollout of the new WMS in Cape Town DC impact operations?
A: Gordon Traill explained that Cape Town is their second-largest DC, and the WMS has been tested in their dark store rollout, minimizing operational impact. They are confident in the system's implementation.
Q: What are the smaller store formats referred to in the presentation?
A: Bertina Engelbrecht mentioned that they are evaluating smaller store formats, which could provide opportunities to enter areas not accessible with their current store size. Details are still being finalized.
Q: What is the reason for the slower recovery in hospital sales for UPD?
A: Gordon Traill noted that hospital sales were above 40% during COVID but have slowed due to a gradual recovery in paid patient days and a shift from originators to generics.
Q: Can you provide guidance on share buybacks and potential acquisitions?
A: Gordon Traill stated that they maintain flexibility in their dividend policy to deploy resources for buybacks or acquisitions, aiming to return cash to shareholders while maintaining a return on equity target of 40% to 50%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
