Spar of South Africa Profit Growth Slows Amid Weak Economy

Updated on
  • Net income gains 5.3 percent, first half sales also increase
  • Supermarket chain expanding in Europe, Southern Africa

Spar Group Ltd. said first-half profit growth slowed as the South African food and liquor retailer expanded in international markets and refurbished stores to counter weak consumer spending in its home market.

Net income rose 5.3 percent to 825.4 million rand ($52.6 million) in the six months through March, Durban-based Spar said in a statement on Wednesday. Revenue gained 17 percent to 42.5 billion rand. Profit advanced by 22 percent in the same period in 2015.

“In South Africa, trading is expected to remain under pressure with constrained consumer spending and persistent high levels of unemployment,” the company said.

The shares declined 3.1 percent to 204.70 rand as of 11:56 a.m. in Johannesburg, on track for the lowest closing price since April 1. That pared 2016 gains to 11 percent, valuing the company at 38 billion rand.

Spar has been expanding outside South Africa to counter slower economic growth in its home market, which is weighed down by weak commodity prices and rising unemployment. The grocer agreed in March to buy a majority stake in the company that owns the Spar brand in Switzerland, after acquiring the equivalent chain in Ireland and southwest England two years ago. International acquisitions generate revenue in currencies other than the rand, which has weakened 24 percent against the dollar in the past 12 months.

“The Southern African region is still our primary focus -- we are seeing good returns in Botswana, Zambia and Mozambique,” Chief Executive Officer Graham O’Connor said in a phone interview. “Foreign exchange volatility has not impacted us much, our timing was spot on with our international acquisitions.”

In Europe, the acquisition of Spar Switzerland will make a positive contribution to performance this fiscal year, the company said. A continued Irish economic recovery will also help deliver growth for the grocer, it said.

The company upgraded 66 stores in the six-month period, more than in the same period a year earlier, and the refurbishment program is set to continue in the second half, O’Connor said.

“We are very positive about the sales outlook for the next six months,” the CEO said. “Our focus on organic growth is the order of the day for Spar in Southern Africa.”

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