Shoprite Shifts Investment Focus to Africa as Profit Slows

Shoprite Holdings Ltd. (SHP), South Africa’s biggest food retailer, is shifting its investment focus to the rest of the continent as sales in its home market slow and full-year profit missed analysts’ estimates. The shares fell the most in 19 months.

“Against the backdrop of South Africa growing so badly and the company having to maintain growth over the next 10 years, our investment priorities are shifting toward Africa,” Chief Executive Officer Whitey Basson said in a presentation to investors today. The Cape Town-based company plans to spend 1.5 billion rand ($141 million) developing stores abroad on the continent in the year ending June 2015, compared with 697 million rand in South Africa.

Retailers in the country are struggling as rising unemployment, inflation and interest rates add pressure to shoppers’ disposable incomes. Retail sales were unchanged in June, the worst performance since December 2009.

Shoprite earnings per share excluding one-time items rose 3.3 percent to 6.98 rand in the 12 months through June, the Cape Town-based company said today in a statement. That compares with the 7.35 rand mean estimate of 15 analysts surveyed by Bloomberg. Revenue growth at the company’s South African supermarket operations was 8.7 percent, slowing from 9.8 percent a year earlier.

Photographer: Dean Hutton/Bloomberg

“With economic growth expected to remain below 3 percent in the new financial year there is not much relief in sight for the beleaguered South African consumer,” the company said. Close

“With economic growth expected to remain below 3 percent in the new financial year... Read More

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Photographer: Dean Hutton/Bloomberg

“With economic growth expected to remain below 3 percent in the new financial year there is not much relief in sight for the beleaguered South African consumer,” the company said.

The shares fell 5.6 percent to 145.55 rand by the close in Johannesburg, the biggest decline since January 2013. The stock has fallen 11 percent this year, compared with a 5.7 percent decline on the FTSE/JSE Africa Food & Drug Retailers Index.

No Relief

The company has committed to opening 80 new supermarkets in the year through June 2015, of which 50 will be in South Africa and 30 elsewhere in the continent. That would bring its total number of food outlets to 1,126.

“With economic growth expected to remain below 3 percent in the new financial year, there is not much relief in sight for the beleaguered South African consumer,” Basson said.

The company’s trading profit margin declined to 5.6 percent as it spent 1.6 billion rand on new stores, distribution center expansions and information technology. Furniture sales advanced 12 percent.

“We invested heavily in the future of the group in anticipation of the next upswing in the economy,” Basson said. “This was achieved in an environment of constantly rising costs, especially in the areas of electricity and energy over which we have no control.”

Revenue from outside South Africa, which accounts for almost a fifth of Shoprite sales, increased by 27 percent, in line with the previous year. The company added 16 African supermarkets outside its home market, bringing the total to 169 across countries including Angola, Zambia and Namibia.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net John Bowker, Tom Lavell

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