Spar Switzerland fails to deliver on promise as sales tumble
By Colleen Goko - Jun 1st 2017, 09:42
Spar’s move into Switzerland — aimed at providing stability and growth to offset difficult local trading conditions — has not lived up to expectations yet with Swiss operations reporting mixed interim results.
The South African grocery and wholesale group, which acquired 60% of its Swiss sister slightly more than a year ago, reported that like-for-like retail sales at Spar Switzerland declined 4.2% in local currency terms in the six months to March. It also incurred an operating loss of R8.3m in that operation.
While deflation and a weaker Swiss economy conspired against the group, Spar CEO Graham O’Connor said there were factors within the retailer’s control that could be changed to turn that business around.
"Trading conditions were a bit tougher than we anticipated in Switzerland," O’Connor said on Wednesday.
"But we’ve made some changes and one of them has been appointing Rob Philipson to run the business."
"This has been very well received and we anticipate a turnaround in the next six months, no question about that."
Philipson was the MD of the KwaZulu-Natal division and will now take on the role of CEO in the Swiss operations. He has the job of improving the retail offering to the same standard as other regions in which the group operates. Plans include updating store designs and revising the product mix.
Group results were "a mixed bag", O’Connor said.
As far as total pretax profit was concerned, Southern Africa contributed 88%, Ireland 15%, and Switzerland a R26.6m loss.
Group headline earnings per share declined marginally 0.9% to 475.5c. Turnover rose 12.6% to R47.4bn. Gross margins increased to 9.6% from 8.7% in the year-earlier period. The turnover of Spar Southern Africa increased 4.9% to R32.5bn.
"We are disappointed with the local performance. To grow by 5% is okay but better than most," O’Connor said.
The BWG Group (Ireland) reported euro-denominated growth of 1.6%. In rand terms, its contribution fell 13% due to the rand’s appreciation during the period under review.
Cratos Wealth senior analyst Ron Klipin said overall the increase in sales looked attractive. "However, splicing and dicing we arrive at South African sales of 4.9% where expectations had been at 6.5%."
"The sales in SA were affected by the sombre results of Build It, which had been a strong growth driver before. In addition, the group had to contend with deflation in Switzerland and Ireland."
"Shoprite’s results were superior to those of Spar but a comparison is not necessarily the only benchmark as Spar is mainly in wholesaling," Klipin said.
O’Connor said that locally the economy would need to grow in order for Spar to benefit and that he expected trading conditions to be similar but slightly better going into the second half of the year.
Klipin said the outlook for the remainder of 2017 would be challenging with consumer spend in SA under pressure, while deflation in Europe would remain a major obstacle in growing turnover in a very competitive market.
Spar declared an interim dividend of R2.40, down from R2.55 in the year-earlier period.
The share price dropped close to 4% in intraday trade. By the close of trade on Wednesday, Spar was down 2.76% to R170.92.
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