Shoprite Profit Climbs as Grocer Limits Food Price Increasesby
Net income advanced 12% in first half of year vs. 9% year ago
Retailer's shares gain 2.6% to 148.5 rand in Johannesburg
Shoprite Holdings Ltd. said first-half profit growth accelerated as Africa’s largest food retailer kept price increases below a soaring inflation rate, boosting sales to cash-strapped shoppers.
Shoprite’s so-called internal food inflation was 2.2 percent in the period, compared with 5.2 percent a year earlier and national food inflation of 5.8 percent in December, the Cape Town-based company said in a statement Tuesday. Net income advanced 12 percent to 2.2 billion rand ($146 million) in the six months through December, compared with a 9 percent increase a year earlier.
The pricing policy helped the South African supermarket chain grow revenue even as retailers and consumers face higher food prices caused by the country’s worst drought in more than a century. A weakening rand also prompted the central bank to raise interest rates by half a percentage point last month, increasing repayment costs for those with loans or mortgages.
“Volume growth picked up as price hikes were kept below the official inflation rate,” said Bloomberg Intelligence analysts Charles Allen. “The company has the levers to reduce its operating expenses and remain a low-cost operator to drive sales and margin.”
Shoprite shares rose 2.6 percent to 148.5 rand as of 1:18 p.m. in Johannesburg, extending the year’s increase to 3.7 percent and valuing the grocer at 85 billion rand. The company also raised its half-year dividend by 9 percent to 1.56 rand.
Shoprite “has continued to subsidize basic food stuffs such a bread, milk and rice, putting money back in the pockets of consumers while also driving volume growth in those product categories,” Chief Executive Officer Whitey Basson said.
Outside of its home country, Shoprite is opening its 200th supermarket this month. The company gets 17.5 percent of its retail sales from markets on the continent outside South Africa, Basson said in a presentation in Cape Town.
Nigeria showed healthy sales growth despite a slump in the price of crude oil and foreign exchange controls, Basson said. The retailer plans to open six Nigerian stores by December, adding to the 16 currently trading, and will also set up a distribution center in Lagos in the next couple of months to improve product availability.