Fashion retailer Deacons East Africa has earned Ksh133.3 million ($1.3 million) from sale of its Mr Price stores to the franchise owner Mr Price Group which is based in Durban, South Africa.
The payoff covers the cost Deacons had incurred in equipment and operating leases for the 12 stores.
This makes it a lesser profitable divestiture by the Nairobi Securities Exchange-listed firm which made a gain of Ksh470 million ($4.7 million) when it transferred the Woolworths franchise to Woolworths Holdings of South Africa.
“The acquisition of 12 Kenyan franchise stores from Deacons East Africa Plc was completed on May 18, 2018,” Mr Price says in a trading update. In a separate disclosure in its latest annual report.
Deacons says it was to receive Ksh108.6 million ($1 million) for the equipment and operating lease covering Mr Price stores in Kenya. It was to receive an additional Ksh24.7 million ($243,294) for similar items in respect of Mr Price stores in Uganda.
Mr Price also inherited the staff previously employed by Deacons. The two companies had fallen out ahead of the deal, with Deacons blaming its former partner for its deeper losses in the year ended December.
Deacons says Mr Price reduced its trading margins, initiated the franchise takeover transaction and meanwhile withdrew product supply ahead of the critical Christmas season.
“Consequently, the group’s revenues declined by Ksh303 million ($3 million) compared to the prior year. The Mr Price brand alone contributed a decline of Ksh324 million ($3.2 million) with a margin loss of Ksh154 million ($1.5 million) as a result of discontinued supply of stock by the franchisor,” the company said in the report.
The fashion retailer’s net loss widened three times to Ksh841.4 million ($8.3 million) in the review period compared to Ksh276.3 million ($2.7 million) a year earlier.
The company’s stock has dropped 92 per cent from the listing price of Ksh15 ($0.15) per share in 2016 to Monday’s Ksh1.2 ($0.012).
The losses have whittled down its shareholder funds to Ksh330 million ($3.3 million) from highs of Ksh1.5 billion ($14.8 million) in 2015.