DURBAN - Shoprite's disappointing annual results reflected a “perfect storm” with South African consumers under pressure and its Angolan operations taking a hit.
In its results for the year to July 1 the retailer yesterday reported that diluted headline earnings a share declined by 3.8 percent to 968.7cents a share.
Shoprite shares closed 4.15 percent lower on the JSE yesterday at R203.
With a decline in earnings, Shoprite cut its dividend to shareholders by 14 percent to 279c, down from 324c last year.
Chief executive Pieter Engelbrecht said: “An unprecedented VAT increase, record fuel prices and sugar tax, to name a few, provided a challenging environment for the group and put our customers under undue financial pressure.”
South Africa’s gross domestic product grew 1.3 percent in 2017 and fell 2.2 percent in the first quarter of 2018, while unemployment remained high at 27.2 percent.
Despite these testing trading conditions, Engelbrecht said the group had managed to increase total turnover by 3.1 percent to R145.3bn - with positive volume growth of 2.7 percent combined with a 3.3 percent increase in customer numbers, as well as local market share gains - continuing to reflect a strong underlying performance.
The group said its core South African supermarket operations increased turnover by 5.7 percent, despite experiencing overall deflation in selling prices for six out of 12 months during the year.
“Internal selling price inflation declined sharply from an average of 5.9 percent in the corresponding period to just 0.3 percent during the year under review, with 13241 products in deflation at the end of June 2018,” the group said.
Unfavourable
Outside South Africa, Shoprite sales slumped 7 percent in its 14 other countries, hurt by slow economic recoveries, unfavourable currency movements and foreign exchange shortages. Angola, in particular, weighed following two years of breakneck revenue growth.
However, the company was set to expand into Kenya and remained committed to the African continent, the group said.
Shoprite opened a net 124 new stores during the past 12 months and at year-end was trading from 2 843 outlets, adding 3 676 additional jobs in the reporting period, with a staff total of 147 478.
Ron Klipin, a senior analyst at Cratos Capital, said the results were a perfect storm due to hyperinflation in Angola resulting in rand sales down by 26 percent, with major currency depreciation.
“The listeriosis outbreak had an impact on a large component of its sales, especially in the lower LSM client base. Sugar tax resulted in lower sales of carbonated drinks,” Klipin said.
He added that the group experienced 489 robberies at group outlets, resulting in a loss of sales, which took around three weeks to normalise.
“The strike action at store level also meant a loss in turnover,” he said.
Absorbed
Klipin added that the group absorbed the costs of the 1percent increase in VAT to add to food subsidies of in excess of 100 items which included R5 a meal subsidies.
“The total cost for these was R2bn to the group. Food inflation declined substantially from 7.4 percent to around 0.4 percent, impacting on sales growth. RSA sales of 5.7 percent growth were respectable, gaining market share, but were impacted by non-RSA sales.”