Johannesburg - The slow growth in Shoprite’s retail sales was an indication of how pressed consumers were, and that its main competitor, Pick n Pay, was back in town, analysts said on Friday.
Shoprite’s retail sales at its local supermarkets for the six months to December rose 7.6 percent, lower than the 11.5 percent rise in the previous corresponding period.
The retailer said internal food inflation averaged about 3.8 percent compared with general food inflation of 5.6 percent. The group grew turnover by 9.6 percent to R51 billion.
December trading was affected by the closure of all local stores on December 15 to honour the burial of Nelson Mandela. “It is estimated that should these stores have traded on the day, sales of about R260 million would have been generated, impacting turnover growth for the period by 0.7 percent,” Shoprite said.
Massmart, which also closed its outlets on the day, estimated its net sales loss was R200m.
Analysts said the latest poor trading performance by retailers was a sign of what lay ahead this year.
Consumers’ discretionary income will be eroded by high fuel prices, unemployment and tightened credit availability.
Reuben Beelders, a portfolio manager at Gryphon Asset Management, was not surprised by the relatively poor trading performance from the retailers. “The retail sector has enjoyed a number of tailwinds over the past few years, the benefits of which are reducing.”
A number of retailers remained priced above their long-term average price-to-earnings ratios and at current prices did not reflect the increasingly difficult operating environment likely to prevail into the future.
Beelders believed that Shoprite had benefited firstly from the social grant system in South Africa, the benefits of which were now being felt at a slower rate, and secondly from the internal issues experienced by Pick n Pay.
Management changes at Pick n Pay have re-established the competitive dynamic.
The weaker rand was likely to raise input costs along the supply chain, coupled with the fact that consumers would have less to spend as the cost of transport rose with the fuel price, he said.
Shoprite shares slid 4.47 percent to close at R151.65 on Friday but it still traded at a price-to-earnings ratio of nearly 24, making it one of the 10 most expensive stocks on the benchmark Top40 index.
Daniel Isaacs, an analyst at 36One Asset Management, said Shoprite’s update was expected as it had been affected by low consumer spending.
In contrast, fashion retailer Foschini said its Christmas trading was satisfactory and in line with expectations. Sales for the nine months to December increased by 9.1 percent with same-store sales growth of 4 percent.
Foschini shares closed at R97.52 on Friday, gaining 0.91 percent on the day.
Looking at the retail sector’s performance data over the past week, Isaacs said Mr Price had performed better than the rest.
For the quarter to December, its total sales grew 14.8 percent. “Even though they [Mr Price] had high inflation at about 10 percent, their like-for-like sales were only marginally negative, which is a good result in this environment.”
Isaacs could not say the same about Truworths and Foschini as both the fashion retailers had notable negatives on the like-for-like sales.
“The whole picture shows that the consumer is under pressure, but you still have better performing retailers such as Mr Price and Woolworths,” he added.
He believed that with the right fashion and price point, retailers could still be relevant to the consumer despite weak consumer spending.
Isaacs said that in Shoprite’s case, it seemed to have contained some of the price increases. “There could be a number of reasons for that. One is that Shoprite knows the consumer cannot absorb the full price increase, but another very possible reason could be that the retailer was reacting to Pick n Pay’s re-emergence by reinvesting in price points to make themselves even more competitive.”