The Shoprite Holdings share price surged more than 10 percent after Africa's biggest retailer yesterday reported a strong half performance in sales for the 52 weeks to end June, mainly driven by its core market, the Supermarkets RSA.
Supermarkets RSA increased its sales by 7.4 percent in the second half after recording 2.6 percent growth in the first half resulting in a 4.9 percent increase for the year.
The group’s overall sales increased by 3.2 percent to R150.6 billion for the 52 weeks after recording a 6.5 percent increase in the second half. The share price climbed to R161.50 a share yesterday morning, up from Monday’s close of R145.60.
Chief executive Pieter Engelbrecht said the group had emerged from a transformational year in 2018, which resulted in only marginal sales growth in the first half to December, with group sales up 6.5percent excluding hyperinflation impact.
“This performance was driven mainly by our Supermarkets RSA operation growing sales by 7.4 percent in the six months to June and 9.4 percent in the final quarter.
"The market share gain in the most recent quarter is testament to our core South African business being back to full operational strength,” Engelbrecht said.
However, Shoprite is still facing challenges outside South Africa with sales in Angola and Supermarkets Non-RSA reporting a decline of 38.4percent and 7.7percent, respectively.
The group also said the first half’s performance was impacted by the completion of its multi-year ERP IT system re-platforming as well as the aftermath of the May and June 2018 industrial action at its largest distribution centre in Gauteng.
“The combination of ongoing low food inflation in South Africa and currency devaluations in the rest of Africa have resulted in this being a most challenging year, however, the continued improvement throughout the second half is pleasing and product availability now surpasses pre-system implementation levels,” Engelbrecht said.
Jordan Weir, a trader at Citadel, said the results were in line with expectations. “The positive move in the share price is likely due to stronger sales growth for the period versus the headline earnings numbers which Shoprite actually gave negative guidance on.”
Shoprite said it expected its basic headline earnings a share to decline between 14.3and 20.3 percent for the year to end June between 774.2 cents and 832.5c a share, down from last year’s 971.4c.
On Angola’s performance, Weir said it would depend on how the company approached these types of pressured regions whether the group would keep them within its portfolio.
“Declining sales coupled with hyperinflation in Angola is, and will continue, to be challenging currency instability in Angola and any other of Shoprite’s African business operations may force the group to examine its strategic geographic businesses locations”
Shoprite opened 80 new stores in the period and planned to open 88 next year. Its furniture division increased sales by 4 percent and the OK franchise, Medirite pharmacy and Checkers food services grew sales by 10 percent.
Shoprite shares closed 5.75 percent higher at R153.97 on the JSE yesterday.