LOCAL research firm FBC Securities says expansion of store locations in suburban areas will be crucial for the retail giant Meikles, given the high levels of dollarisation in the economy and expectations of exchange rate volatility.
In its review of Meikles’ financial results for the year ended February 29, 2024, FBC Securities emphasised the importance of effective customer profiling in driving sales growth for the company.
“However, informal competition seems more pronounced in high density to medium density areas, the business continues to garner favourable volumes in suburban areas and low-density areas especially stores in Borrowdale and Arundel,” it said.
“Effective customer profiling, whereby stores are increased in suburban areas, will be paramount given high dollarisation in the economy and exchange rate volatility expectations.”
Despite complexities in the economic environment wherein formal retailers are mandated to use the prevailing interbank exchange rate for product pricing, Meikles managed to sustain volume altitudes enduring only a 4,8% decline during the period under review in terms of units sold.
The firm noted that Meikles business model was a high cash flow business, allowing the company to be more agile, responsive to market opportunities and threats.
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It said investment in new technologies, penetration into new markets (through new stores) and pivoting strategies, was seamless given limited financial resources strain.
On the backdrop of a robust cash flow structure, it added that Meikles had managed to sustain a constant dividend policy barring obtaining economic circumstances characterised by inflationary pressures and exchange rate volatility.
“The business also has a lower debt level of circa 3,13% which reduces financial risk and enhances credit profile,” FBC Securities said.
“On the backdrop of regulatory evasion by informal competition, wherein tuckshops operate with relatively lower overheads emanating from tax avoidance and minimum regulatory compliance, price undercutting remains a key downside risk to the Meikles business in our highly dollarised economy.”
During the period, Meikles posted a revenue of ZWL$10,44 trillion compared to the ZWL$5,17 trillion recorded in the 11 months ended February 28, 2023.
The consumer staples concern changed its financial year-end last year, from March to February, making the comparative financial results 11 months instead of 12.
Meikles chairperson John Moxon said the financial year under review was characterised by currency volatility.
Profit after tax increased to ZWL$469,5 billion from ZWL$88,6 billion the previous year.
“The effective tax rate of 45,5% was much higher than the statutory tax rate of 24,7% for the year due mainly to the disallowed intermediated money transfer tax of ZWL$114 billion,” he said.