Shoprite’s shares leap 15% on Tuesday despite lower earnings
By Nick Hedley - Jul 30th, 09:56
Grocery retailer Shoprite, whose chains include Checkers and OK Furniture, says earnings declined by up to a fifth in the year to June because of trading losses in the rest of Africa and higher costs in SA.
Earnings fell even as sales from the group’s core supermarkets business in SA rebounded in the second half, thanks partly to market-share gains, Shoprite said.
Investors shrugged off the decline in profits, with Shoprite’s shares jumping 15% in early trade to R167.51.
The group said its headline earnings per share for the year fell by 14.3%-20.3% as labour costs rose due to new legislation and on higher rent and electricity costs.
Shoprite also lost sales following a strike at its largest distribution centre. Meanwhile, it said foreign exchange shortages and local currency weakness in other African markets — including Angola — resulted in a trading loss for the international supermarkets business.
But CEO Pieter Engelbrecht said sales improved in the second half, particularly in SA.
“Emerging from a transformational year in 2018, which resulted in only marginal sales growth in the first half to December, we are pleased to report improved growth in the second half," Engelbrecht said in a statement.
Group sales in the second half to June rose 6.5% as the domestic supermarkets unit grew sales by 7.4%, with sales up 9.4% in the final quarter.
In the first half of 2019, group sales increased by just 0.2% but declined by 2.7% on a like-for-like basis. The domestic supermarkets business reported sales growth of 2.6%, or a 0.5% fall on a like-for-like basis.
“The market share gain in the most recent quarter is testament to our core South African business being back to full operational strength,” Engelbrecht said on Tuesday.
On the other hand, trading conditions in the rest of Africa “remain relentless” but the group remained optimistic about those operations.
“Better customer service levels and recent market share gains are indicative that the challenges following last year’s industrial action and the successful deployment of our new enterprise-wide system are now behind us,” Engelbrecht said.
The group’s expansion plan remained on track, with 80 new supermarkets opened in the period and 88 planned for the next year.
For the full year to June, the South African supermarkets unit grew sales by 4.9% or 1.9% on a like-for-like basis.
“The Checkers chain led the supermarkets’ growth, making strides in improving our fresh offer and gaining market share in fresh produce and convenience meals,” Shoprite said.
Internal inflation for the year averaged just 1.2% for the group’s domestic supermarkets. Almost 10,000 were still becoming cheaper in June.
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