Petri Redelinghuys of Herenya Capital Advisors on Clicks and what its decline indicates for the future.
In yesterday’s earnings, Clicks (CLS) announced a respectable revenue growth of 7.4%. While it came short of expectations, the other metrics, such as the newly opened 1000th store and over 800,000 new ClubCard members, Clicks should appear like a very successful business. But the comapny share price is a sharp contrast to that image, with an 8.1% drop in a single day, which begs two questions: why did it happen? And what does it mean for the rest of the market?
Clicks shares dropped by 8.1% in one day, reaching the lowest point in more than a year
Understanding The Drop
There are a few reasons why Clicks shares are doing so poorly in the market. Some of the lesser reasons are rising operating costs, aggressive discounts from competitors, as well as a period of poor management in December, where the company missed out on over a hundred million Rand in revenue, as changes in the warehouse management system led to empty shelves on the stores.
But the most important reason is the current and future economic situation of the average consumer. In the short term, the war in the Middle East has disrupted global supply chains and led to inflation and a massive increase in the cost of living, while in the long term, consumers have to deal with the lingering effects of inflationary pressures. This hurts Clicks’ long term prospects, as something of a luxury brand, as its customer-base will have less disposable income to spend on non-essentials, and subsequently, the forward-looking market avoids the company, despite its current revenue growth.
The Future
We can look to the war in Ukraine as an example of how this conflict’s effect on the global market can play out. In both cases, the war led to a large scale fuel and energy shortage, which put a great deal of pressure on the consumers, but over time, the supply chains were redrawn and adapted to the market’s new reality. This will relieve some of the pressure, as things like fuel prices go down again, but certain effects, like raised food prices, are difficult, if not impossible, to recover from. This makes luxury goods and companies a less attractive investment as they are the first thing most people cut out if the budget runs tight.
The magic happens in our community!
We’re posting on TradingView, we’re posting on our blog… but the real magic happens in our client community where you can get access to our ideas as they develop. So, open your account and join us and start taking advantage of South Africa’s Top Broker for both Active Traders and Traditional Investors. We have a Discord server, with a Daily Morning Call at 08:30 (Monday – Friday), where our Trading Strategist shares market updates and posts information with the Community. If you are not trading with us yet, what’s stopping you?
*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.
