Shoprite released sales numbers for the six months to end-December which disappointed, sending its share price falling to its weakest level in two years.
In South Africa, sales were up only 2.6% over the half year to end-December.
“The core Shoprite middle income consumer base remains under pressure. This was evidenced in Christmas sales in categories like Back to School essentials which outperformed traditional discretionary purchases such as toys for the first time,” Shoprite said.
Shoprite, which also owns Checkers and OK, says January sales of its Back to School essentials showed “healthy growth”.
Shoprite and Checkers launched large back-to-school promotions, which according to a Business Insider survey, offered the cheapest prices of any retailer. Shoprite also offered complete school uniforms for under R100.
Shoprite’s total turnover – which include its other African operations -was up only 0.03% to R72.9 billion in the six months to end-December.
“If you told anyone one year ago that Shoprite would be posting a flat first half sales growth, they would’ve probably laughed at you,” says Gryphon research analyst and portfolio manager Casparus Treurnicht. “The South African consumer is truly under a lot of stress - but even more so in the rest of Africa.”
Its share price slumped almost 4% on Tuesday morning, before paring losses to trade 2.3% down by lunchtime.
On Thursday, both Woolworths and Mr Price lost large chunks of their value after releasing weak sales numbers.
Its African operations outside of South Africa were also hurt by currency weakness – the Angolan kwanza lost more than 85% against the dollar since January 2018.
Shoprite also scored an own goal with problems at its Gauteng distribution centre, says Jean Pierre Verster, portfolio manager at Fairtree Capital. A strike and the implementation of a new warehouse system caused shortage of products, which may have encouraged shoppers – specifically at Checkers – to go to Pick n Pay instead.
There were some encouraging signs. Its liquor stores sales jumped by more than 20%.
The group also mentioned that they’ve seen an improvement in sales lately, which continued in January with healthy growth in their back-to-school promotions, says PSG Wealth portfolio manager Schalk Louw.
Shoprite South African supermarket sales seemed to have stabilised in the past three months (to end-December), with some evidence of price inflation, says Verster.
Shoprite itself is confident of an improved second half of the year as “the benefit of the new national minimum wage filters into food expenditure”.
Shoprite’s share price is now trading at its weakest level in two years, but Verster is not biting yet.
He believes the price still reflects overoptimistic expectations for sales over the next year or two.
While Louw doesn’t think it is overly expensive on either a historic price/earnings or price-to-book value, Shoprite is not standing out as a “value” buy at this stage.
Shoprite plans to open another 37 supermarkets in the next eighteen months, and while its African operations are volatile and earnings from these stores are “lumpy”, it’s clearly committed to its strategy on the continent to benefit from low supermarket penetration, says Verster.
Also from Business Insider South Africa: