Spar 2014 Profit Beats Estimates on Own-Brand Food Sales

Spar Group Ltd., a South African food and liquor retailer, reported full-year profit that beat analysts’ estimates as customers switched to more affordable, company-branded food. The shares jumped to a record.

Net income rose 13 percent to 1.35 billion rand ($120 million) in the 12 months through September, the Durban-based company said in a statement today. That compared with the 1.29 billion-rand average of analyst estimates compiled by Bloomberg. Sales at the Tops liquor chain jumped 14 percent to 6.6 billion rand, helping push comparable retail revenue up 8.2 percent.

“Whether things are good or things are bad, people still seem to drink,” Chief Executive Officer Graham O’Connor said in a phone interview.

Spar surged 8.5 percent to close at 145 rand in Johannesburg, the highest price since the grocer’s October 2004 spin off from foodmaker Tiger Brands Ltd. The stock has risen 10 percent this year, outpacing a 7.4 percent gain by the FTSE/JSE Africa Food & Drug Retailers Index.

Revenue growth of 15 percent to 55 billion rand was driven by “house brands, which offer value to cash-strapped customers,” the company said. South African consumers have been under pressure this year as economic growth slows to an estimated 1.4 percent, the lowest since a 2009 recession, while the Reserve Bank has raised its benchmark interest rate twice.

New Outlets

Spar plans to increase the pace of openings this fiscal year, with 36 new Spar outlets planned, 59 Tops sites and 30 Build It hardware shops, O’Connor said.

The company bought a majority stake in BWG Group, which owns the Spar brand in Ireland and southwest England, for almost 800 million rand in August to boost sales outside its home market. BWG contributed 2.7 billion rand to total sales, and O’Connor expects it to generate about 30 percent of turnover next year.

“BWG adds another revenue channel and gives margin upside,” Alec Abraham, an analyst at Sasfin Securities in Johannesburg, said by phone. “Spar’s like-for-like sales were a positive surprise,” said Abraham, who raised his recommendation on the stock today to buy from hold.

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