Advertise with fastmoving.co.za
 
 

Shoprite's share price fell 16.6% to R148.83 on Wednesday morning when the market reacted to a trading update it released at 5.30pm on Tuesday.
Shoprite's share price fell 16.6% to R148.83 on Wednesday morning when the market reacted to a trading update it released at 5.30pm on Tuesday.

Shoprite falls 17% as market reacts to profit warning

RETAILER NEWS

By Ann Crotty - Jan 30th, 10:59

Shoprite's share price fell 16.6% to R148.83 on Wednesday morning when the market reacted to a trading update it released at 5.30pm on Tuesday. 

Just two years after taking over as CEO of Africa’s biggest grocer from long-serving Shoprite CEO Whitey Basson, Pieter Engelbrecht looks set to announce what one analyst described as the group’s worst-ever results, with profits for the six months ended-December expected to be down as much as 36%.

In a trading update released late on Tuesday, Shoprite warned shareholders that the group’s operations had been hit by a long list of negative factors, including low food inflation, temporary stock shortages, currency devaluations, lower gross margins and inflexible expense increases.

Basson led the company from 1979 when it comprised just eight stores, expanding its footprint into major economies on the African continent.

The group now has more than 2,840 stores in 14 countries. Engelbrecht, who had worked closely with Basson for several years, took over in January 2017.

Sasfin analyst Alec Abraham said the share price, which ahead of the trading statement was down more than 30% on its March 2018 peak, would be hit hard by the news.

"Coming from Shoprite, this warrants a little bit of panic," Abraham said. The results would be the worst reported by Shoprite "by a long shot".

He said the group’s operational update released earlier in January, which dealt only with sales, had given no indication of the extent of the difficulties.

"On the basis of the sales update I revised my earnings forecast and was expecting a single-digit fall, this is much worse than anything I’d expected," Abraham said.

Jean Pierre Verster, a portfolio manager at Fairtree Capital, said that talk of the tough trading environment was not unexpected as all of the retailers had been hit. "But we’ve come to expect more from Shoprite.

"These figures are horrible."

While Shoprite’s recent results have been hit by its exposure to Angola and Nigeria, which for years had made strong contributions to the bottom line and enhanced the group’s attraction as an African retail giant, the trading update points to major local problems.

Verster said investors would have to wait until the full results were released to determine how much of the problems were down to the non-SA operations versus the SA operations.

But he said it was evident from Tuesday’s trading statement that there were significant problems in its SA operations.

"It’s not like Shoprite to issue excuses for its performance," said Verster, referring to the statement’s long list of factors that affected profitability.

Also unexpected from Shoprite was the long list of costs, including rentals, electricity, security and transport, that increased above the rate of sales growth.

At the 2018 annual general meeting, some shareholders had raised concern about the group’s low returns on its hefty commitment to capital expenditure.

In the last six years Shoprite has spent R40bn on capital expenditure and during 2018 alone it committed R7bn to investment in centralised warehouse facilities and information systems.

Verster said the type of projects being undertaken had average useful lifespans measured in decades.
Business Live 

Read more about: shoprite | shares | share price | sales | retailer | retail | profit

Related News

Is Woolworths unravelling in Australia?
15/02/2019 - 16:35
The sudden departure of two Australia-based nonexecutive directors of Woolworths has fuelled speculation that the troubled retailer will be forced to announce another huge write-down related to the R21bn acquisition of the David Jones department store.

Latest retail sales figures show disappointing trend
15/02/2019 - 10:01
Available economic activity data has shown that the economy ended last year on a weaker footing, with December retail sales figures being the latest to disappoint, declining for the first time in nearly two years.

Woolworths denies that it copied Superlatte products
14/02/2019 - 12:10
Woolworths has categorically denied allegations by Michelle Legge, who founded beverage company Superlatte in 2016, that the retailer has copied her product.

New market store opens through the Pick n Pay market store
14/02/2019 - 11:51
The community of Thokoza welcomed the opening of Matlala Market and it will now offer customers greater variety, a fresh offering and money services under one roof and on their doorstep.

Strike adds to Dis-Chem’s Christmas woes
14/02/2019 - 10:33
Dis-Chem’s Christmas sales have been hurt by a strike, the pharmacy chain warned in a trading update.