Dis-Chem versus Clicks

Dis-Chem and Clicks are fierce competitors in the South African healthcare and fast-moving consumer goods (FMCG) retail market and offer interesting investment cases.

Clicks Group has been listed on the JSE Limited since 1996 and has prominent retail brands, including Clicks, GNC, The Body Shop and Claire’s.

It has over 850 stores across southern Africa and boasts the largest retail pharmacy chain with over 640 in-store pharmacies.

Clicks also owns United Pharmaceutical Distributors (UPD), South Africa’s leading full-range national pharmaceutical wholesaler.

Dis-Chem, founded in 1978 by pharmacists husband and wife Ivan and Lynette Saltzman, follows a “pharmacy first” approach.

It has 194 stores, including retail pharmacy stores, primary healthcare clinics, Baby City, Dis-Chem Direct, e-commerce, and ancillary services.

Clicks and Dis-Chem operate in the consumer staples sector, which should make them less sensitive to economic cycles.

However, both firms’ share prices have endured losses year to date, in line with the decline of the JSE top 40 index.

Dis-Chem and Clicks, therefore, did not provide the expected protection against the economic turmoil, high inflation, and rising interest rates.

Clicks versus Dis-Chem revenue growth

Clicks and Dis-Chem have successfully grown revenue over the last seven years. Since 2015, neither firm has had a decline in its year-end revenues.

Clicks’s results for the six months ended 28 February 2022 showed a turnover growth of 9%, underpinned by retail turnover growth of 13.6%.

The growth came despite the July 2021 civil unrest, which significantly affected its financial performance, and the closing of its Musica stores in May 2021.

Dis-Chem, in turn, reported a 13.2% increase in sales in its 28 February 2021 year-end report.

Over the last seven years, Dis-Chem increased its revenue faster than Clicks. Consequently, Dis-Chem ate into Clicks’ market share.

Despite Dis-Chem winning 5% in revenue market share from Clicks between 2015 and 2022, Clicks remains the larger market-share holder.

A few acquisitions helped Dis-Chem’s growth over the last two years.

It bought a 25% stake in private healthcare provider Kaelo and acquired 100% of medical and hospital equipment provider Medicare.

Dis-Chem also bought Babycity, which provides the full spectrum of baby products.

Profit margins and debt

While Dis-Chem enjoyed faster revenue growth, Clicks is more profitable and enjoys a higher operating profit margin and net profit margin.

One possibility is that Clicks manages its operating expenses better than Dis-Chem, while Dis-Chem’s higher gross margin indicates that it has a lower cost of sales.

Another option is that Dis-Chem is purposefully keeping its profits low to continue building its market share.

Margin	Dis-Chem	Clicks
Gross Margin %	22.46	19.48
Operating Margin %	5.10	7.70
Net Margin %	2.81	4.92
Current Ratio	1.18	1.10
Debt to Equity	1.36	0.61

The last word

Dis-Chem has successfully grown its revenue share relative to Clicks over the last seven years.

Dis-Chem’s strategy seems to be focused on growth when considering its many acquisitions and relatively low profitability.

It will need to watch its debt levels amidst this rapid growth period. Dis-Chem’s debt-to-equity is already more than twice that of Clicks.

Stated another way, Clicks can cover its interest payments thirteen times with its operating profit, while Dis-Chem can only cover it five times.

Having said that, Dis-Chem still has very healthy levels of liquidity to cover its short-term liabilities with a current ratio of 1.18.