* 3 Australian stores closed in April
* No pressure to expand internationally- CEO
* FY HEPS up 6.2% (Recasts with Australia exit)
By Nqobile Dludla
JOHANNESBURG, May 31 (Reuters) - South African budget retailer Mr Price Group has closed its Australian test stores due to low returns, it said on Friday, underscoring the costs of expanding into new foreign markets, where retailers are fighting for market share.
Mr Price, known for its no-frills clothing and furniture stores, has been testing out three stores in Australia, one MRP apparel and two MRP Home, since late 2015 to see whether there is “a proven profitable business case for expansion”.
But in April the board approved the withdrawal of financial support to the Australia operations and as a result the MRP Retail Australia (Pty) Ltd directors put the company into administration on May 2, the firm said in its results statement.
The Australian stores ceased trading at the end of April.
Chief Executive Officer Mark Blair, who took the helm in January, said the business did not have the scale and prices to cover operating margins.
Unlike other retailers, Mr Price has taken a cautious outlook on international expansion outside Africa as organic growth beyond Africa has proven challenging and distracting.
“To build a brand in a foreign market is a very long road and you got to have some deep pockets,” he told analysts at the results presentation, adding that the firm’s biggest and significant opportunities are in its home market, where it knows the customer and competition.
“We need to just stress that we’re in no rush to buy something internationally. We don’t feel the pressure.”
Having said that, the group with more than 1,300 stores across Africa, is undertaking a research phase from June, to evaluate identified opportunities in existing markets and identify attractive international markets, Blair said.
The most likely approach will include partnerships with existing successful businesses, which will be funded from the balance sheet, he added.
Mr Price saw total revenue in the year ended March 30 grow 5.8%, with retail sales up by 4.4% to 20.9 billion rand, exceeding 20 billion rand for the first time, Blair said. While comparable store sales rose 1.6% in a tough retail environment.
Retailers in South Africa are struggling to boost sales growth as an increase in value-added tax, unemployment, and higher fuel costs as well as utility prices have reduced consumers’ spending power.
That has created a low growth environment for retailers competing for market share, resulting in strong promotional activity.
Despite this, both the apparel and homeware businesses outperformed the market and gained market share on an annual basis in the first half.
The apparel business, which comprises Mr Price, Miladys and Mr Price Sport, saw retail sales and other income (RSOI) rise by 3.8%, while the home segment, which includes Sheet Street and Mr Price Home, increased RSOI by 5.9% to 5.3 billion rand.
Its diluted headline earnings per share (HEPS) rose to 1 rand 142 cents from 1 rand 75 cents in the year-ago period.
At 0935 GMT, shares in Mr Price were up 8.10% to 192 rand, on track for their biggest daily gain since December 2017 if the stock closes at that level.
Reporting by Nqobile Dludla, Editing by Susan Fenton and David Evans