Shoprite's share price on Wednesday. (Fin24)
  • Shoprite's weak sales could indicate that Pick n Pay may be taking market share, an analyst believes. 
  • Shoprite posted turnover growth of only 3.3%, to R145.6 billion, on Wednesday morning.
  • Its share price was slaughtered on Wednesday.

Shoprite’s weak sales performance could indicate that the long-suffering Pick n Pay may be taking some of its market share, an analyst said on Wednesday.

Earlier on Wednesday, Shoprite reported a trading update for the year to end-June. Turnover rose only 3.3%, to R145.6 billion.

Gryphon research analyst and portfolio manager Casparus Treurnicht said the update shows that the past six months were clearly horrible for Shoprite.

The group previously reported turnover of 7.4% for the first half of the year, which means that turnover must have lost considerable momentum over the last six months.

By comparison, Pick n Pay’s South African sales grew by 8.0% in the three months to end-February. 

After bleeding customers in recent years, Pick n Pay has reduced its labour force by a tenth and streamlined operations. It has also invested in logistics and new stores, and within six months, over R1 billion had been extended to new Pick n Pay credit card holders. And in the past year, Pick n Pay invested R500 million in price cuts to become more competitive. 

"I believe Shoprite took some strain due to Pick and Pay getting more competitive but just as important, Shoprite suffering from a much weaker than expected economy," says Treurnicht. 

The trading environment is extremely tough, as is evident from Statistics SA latest retail sales number, also released on Wednesday: retail sales rose only 1.9% in the year to May.

Shoprite also faced hard times in some of its African markets. Its latest trading update had to account for the effect of hyperinflation in Angola. 

By late afternoon, Shoprite’s share price was down more than 5% to R208.89, though it recovered slightly to above R211. Treurnicht thinks that the share, which is still trading at a price-earnings ratio of more than 20 times, is still expensive.

“I think we’ll see the retail sector sell off in general but also Pick n Pay starting to outperform Shoprite. Pick n Pay grew sales between 5% and 5.5% consistently over each half for the last two years. It seems [Pick n Pay CEO Richard] Brasher has a clearly-defined strategy.”

Shoprite's share price over the past year. (Fin24)

Receive a single email every morning with all our latest news: Sign up here.

Also from Business Insider South Africa: