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Shoprite Sees Trading Pressures Persisting in Second Half

Shoprite Holdings Ltd., Africa’s largest food retailer, said increases in the price of fuel and power in South Africa coupled with labor unrest will hold back consumer spending in its second half.

“There are no indications that the cost pressures on consumers will ease in the short term,” Chief Executive Officer Whitey Basson said in a presentation in Johannesburg today. The grocer expects to “at least” maintain its first-half performance, he said.

Net income advanced 19 percent to 1.7 billion rand ($191 million) in the six months through December from 1.43 billion rand a year earlier, the Cape Town-based company said in a statement today. Sales rose 14 percent to 46.7 billion rand, with its core South African market underperforming with a 12 percent gain in a “sluggish trading environment.”

Shoprite shares fell 3.1 percent to 172.50 rand by the close in Johannesburg. Other South African retailers to warn the trading environment would hurt sales growth in 2013 include AVI Ltd., a food and clothing brand specialist, and Mr Price Group Ltd.

South African retail sales growth weakened in December as high unemployment and rising inflation curbed consumer demand. Inflation rose to 5.7 percent in the month.

December Sales

Shoprite’s sales climbed 12 percent that month, compared with 17 percent a year earlier, Basson said. January trading was stronger than December with good “back to school promotions,” he said.

The profitability of operations outside its core South Africa market helped Shoprite protect its margins, Basson said. “While the South African retail market is maturing and competition is increasing, in the rest of Africa there is strong economic growth and underdeveloped retail markets.”

Shoprite opened 10 supermarkets in the continent excluding South Africa during the reporting period, bringing the total number of stores it operates outside its domestic market to 144. A further 13 are scheduled to open in the second half of the financial year.

Shoprite had an exchange-rate loss of 41.4 million rand, compared with a gain of 27.7 million rand a year earlier, as the Malawian kwacha slid. The company raised its dividend for the six-month period by 13 percent to 123 cents a share.

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