Make or break for Mr Price

Mr Price shares gained as CEO Mark Blair defended the South African clothing chain’s purchase of the retail business of NKD Group, after mounting concerns it may have overpaid in its push into central and eastern Europe. 

Mr Price opted for NKD to gain a scaled platform for earnings diversification, avoiding smaller deals with less impact, Blair said at the firm’s capital-markets day in Cape Town on Tuesday.

The company is making “voluntary disclosures” in an effort to be transparent with investors that have recently “overplayed” speculation around the deal, he said.

Europe’s retail market is roughly 17 times larger than South Africa’s, underscoring the scale of the opportunity, despite competition, Blair said.

The “highly capable management team in Germany is focusing on Germany,” and will operate largely independently, he said.

The stock climbed 2.3% as of 11:26 a.m. in Johannesburg, paring its drop since 10 December — when the mid-range apparel, sports goods and homeware company said it will spend as much as €487 million ($560 million) for NKD — to 18%.

It’s still the worst performer on the broader retail index over that period.

Sluggish growth at home has pushed South African retailers to seek new avenues for expansion, including moving into banking.

Eastern Europe has drawn South African clothing chains before. While larger rival Pepkor successfully expanded in Poland through what became Pepco, others have been far less successful with offshore ventures.

“I’ll be looking to see whether leaving NKD to the existing management is good enough,” Alec Abraham, an analyst at Sasfin Securities, said before the presentation.

“Considering it’s now about 30% of Mr Price’s business, it’s vitally important that it works. If you don’t believe the numbers are achievable, it erodes confidence in management.”

Blair and his team started addressing questions during the ongoing presentation.