You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

NEW SENS search and JSE share prices

More about the app

Shoprite plunges most since 1999 after grocer’s profit warning

Heps declines between 16% and 26% to as little as R3.89.
A Shoprite store in Cape Town. Picture: Dean Hutton/Bloomberg

Shoprite shares slumped the most since 1999 after Africa’s biggest grocer said first-half earnings dropped as much as 26%, with South African food deflation and IT troubles compounding weakness in the rest of the continent.

Headline earnings per share declined between 16% and 26% to as little as R3.89, the Cape Town-based supermarket operator said in a statement after the market closed on Tuesday.

Key insights

Shoprite has more than 2 500 stores throughout Africa, yet a considerable majority are in South Africa. That exposes the company to the depressed consumer environment in the continent’s most industrialised economy, which particularly affects its core lower-income customers.

Alongside food-price deflation and rising costs in essentials such as electricity and security, Shoprite struggled with the introduction of a new IT system and some industrial action.

There’s little sign of any economic improvement either, though the company insists it can rely on customer support for its brands. In countries elsewhere in Africa, Shoprite’s problems aren’t new. A massive devaluation in the Angolan currency (and, to a lesser extent, in Zambia and Nigeria) has hurt conversion to the rand and driven up import costs. Meanwhile, rents in many African countries are linked to the US dollar.

Market reaction

The shares fell as much as 17%, the most since July 1999, and traded 12% lower at 157.37 rand as of 9:12 a.m. in Johannesburg. That extended a January decline to 17%, and the stock is down 34% over the past 12 months, compared with a 10% retreat on the FTSE/JSE Africa Food & Drug Retailers Index.

Get more

“Shoprite’s high South African margin has been driven by a formula of low prices in ever-improving stores,” said Charles Allen, an analyst at Bloomberg Intelligence. Yet “availability issues, caused by an IT upgrade and strike, have hurt revenue” and “competition has improved, meaning that the company will have to work harder to regain momentum.”

“Profitability has been affected by South African deflation and consumers under extreme pressure, as well as inflexible costs, many of which are fixed in dollars across other African countries,” said Alec Abraham, an analyst at Sasfin Securities in Johannesburg.

© 2019 Bloomberg L.P

Listen here: Shoprite tumbles on profit warning

COMMENTS   10

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Now we know why Wiese sold at above R200!

He still controls Shoprite though.

That disposal last year was most likely for other liquidity reasons.

Shoprite missing Whitey Basson.

The fine print is irrelevant. This is another canary in the coal mine that has dropped dead. They are dying all over the place. In an economy that is shrinking in real terms and has had its technical spine white-anted, this pattern will continue. Capital (human and financial) is bolting for the doors. If Shoprite is struggling, then who isn’t?

I partly agree with your comment however Corporates and in particular Shoprite have become far too arrogant (Metro Cash & Carry comes to mind, they are dead and buried in your coal mine) especially toward suppliers. Where I come from, Pick ‘n Pay family stotres, Independant traders (both retail and wholesale) are thriving. Why? They are not store managers merely carrying keys to a store.They know how to trade and realize that service and product on shelf is paramount. It is a known fact that up to 70% of Supermarket’s turnover is done from Friday pm through to Sunday, yet, walk into a Corporate store and you will find staff chatting (I saw two merchandisers packing the same product today, the one removing the product from the packaging only to pass it to his colleague, so they can chat) The manager was in the office, probably chatting on social media! Mobile phones should be banned in an environment where customer service is required. Shoprite poor performance only reaffirms that there will always be room in Africa for the entrepreneur. Shoprite is overstaffed and under stocked. The chickens have come home to roost and unless they adapt and become more consumer friendly (price isn’t everything) the sale happens in the store and consumers need and demand service. Their attitude toward suppliers and high cost of trading with them has many suppliers shifting attention to owner driven stores, where the results are clear cut.

Thanks Seve, enlightening response

Seve Roux – if independent traders are thriving then why has the buying groups representing thousands of independent traders tanked? Look at the Friendly IGA, Tradezone, Shield and OK foods groups who are dead in the water. The best one of the independents buying group, Spar, has had no growth in store numbers in a decade. In the early 2000’s Spar had about 800 stores whilst Shoprite Checkers had far less. Today Spar is sitting at 850 stores (15 years later) and the Shoprite Checkers group is sitting at over 1300 (if you exclude the OK food division). Groups with only corporate stores grew at a faster rate than any independent group could wish for so your theory about bad service being the cause of the downturn in profit makes no sense.

.

Need to look at their personnel costs and productivity. More workers causing congestions than customers.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles:
Click a Company: