Shoprite on why first half results are below expectations

Interim results for the Shoprite Group [JSE:SHP] for the six months ending December 2018 were negatively affected by increased financial pressure on its core customers and challenges with certain IT projects, among others factors, the group said on Tuesday morning. 

Shoprite described the interim results as below expectations.

In a statement to shareholders it said 2018 was a "transformational year" for the group, adding the interim results should not be seen as a reflection of the fundamental strength of the business.

During the first half of its financial year the sale of merchandise increased by 0.2% to R75.8bn. The trading profit decreased by 19.0% to R3.3bn, while earnings before interest, tax and depreciation and amortisation (EBITDA) decreased by 12.2% to R4.7bn.

Diluted headline earnings per share of 398.5 cents over the six months is a decrease of 24.1% over the previous corresponding period.

A dividend per share of 156 cents was declared compared to 205 cents in 2017.

The group opened a net 86 corporate stores during the 12 months compared to 121 in 2017. During the six months ending December 2018 it created 1 758 additional jobs.

Unfortunate timing 

According to CEO Pieter Engelbrecht, the decline in headline earnings per share for the interim period must be viewed in the context of various critical expansion and technology projects the group embarked on in the past five years to ensure future growth and modernise its technology landscape.

"The timing unfortunately coincided with the deterioration of the South African and non-SA economies and consumer expenditure levels over this same period," said Engelbrecht.

He said that, in the external operating environment, economic conditions have left the group's core customer under significant financial pressure. Currency devaluations severely impacted the performance of operations outside SA.

"We are a business with a market capitalisation of about R96bn, over 146 000 employees, thousands of stores and a network of distribution centres across 15 countries," said Engelbrecht.

"Yes, we have had some hiccups and challenges and could have done some things better or differently, but we remain a strong, industry-leading group."

The core South African supermarket operation, trading through 1 541 outlets and representing 74.0% of total sales, increased sales by 2.6% with a decline in trading profit of 15.1%.

The liquor division continues to be a standout performer, the group said. It increased turnover by 20.1% in SA and gained significant market share, according to the statement.

Trading in 14 countries in the rest of Africa and Indian Ocean Islands, Supermarkets Non-RSA recorded a decline of 13.3% in sales in rand terms and contributed 14.7% to the group’s sales. Non-SA sales growth remained positive in constant currency terms.

The group’s 479 furniture stores increased turnover by 4.3%. Other operating segments, which include OK Franchise, Computicket, MediRite Pharmacy and Checkers Food Services, achieved turnover growth of 6.5%.

By late morning in Tuesday Shoprite Holdings' shares were trading up almost 4% at R168.26 per share.

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