South African supermarket operator Shoprite Holdings saw its earnings climb in the first half of the year, despite what it described as a "difficult" trading environment.

In the six months to the end of June, earnings were up 26.6% to ZAR4.15bn (US$405.2m), the retailer reported today (21 August). Operating profit grew 17.4% to ZAR5.36bn.

Sales in the period reached ZAR92.75bn, a 12.1% increase on the prior year period.

Shoprite CEO Whitey Basson said growth within South Africa was "hampered" during the year by "widespread labour unrest, rising costs fuelled by a weak rand, falling commodity prices and consumers’ lack of disposable income due to high levels of indebtedness".

Looking ahead, he added that consumers would be "even more exposed" to the impact of the weaker rand as it worked itself through the economy.

"We have therefore decided to invest substantially in the group’s price leadership position by absorbing some of the inflationary impact on the consumer. Although this is bound to put margins under pressure, we nevertheless expect to achieve acceptable turnover and profit growth in the new financial year."

Shoprite opened 114 stores in the period, bringing its total to 1,456.

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Shoprite Achieves Strong Profit Growth In Challenging Year

The Shoprite group reported strong profit growth in the year to June 2013. Trading profit grew by 15,6% - despite the demanding market conditions - substantially above the 12,1% in turnover growth. In doing so it raised its trading margin to 5,8%, the highest ever.

For the first time in its history the Group pushed trading profit beyond the R5bn mark to R5,394bn. This was achieved on turnover that rose from R82,731bn to R92,747bn.  Headline earnings per share increased 11,3% to 675c and the board declared a final dividend of 215c per ordinary share to bring the total distribution for the year to 338c per ordinary share.

Shoprite chief executive Whitey Basson said all the divisions in the Group produced acceptable results. Notable was the strong growth achieved beyond South Africa’s borders.

“Growth within South Africa was hampered during the year by widespread labour unrest, rising costs fuelled by a weak rand, falling commodity prices and consumers’ lack of disposable income due to their high level of indebtedness.

“The country’s low growth rate created many challenges for the retail industry, a situation exacerbated by the government’s sluggish pace at creating an environment in which business could flourish. At the same time a lack of job opportunities increased the dependence of millions of South Africans on government grants of which the annual increase did not keep up with inflation.”

By contrast the Group created a record number of 9 201 new jobs during the year which were filled mainly by people from previously disadvantaged communities. The Group now has 111 338 employees - 97 282 in South Africa and 14 056 outside the country’s borders.

Basson said the South African market, still the main focus of Shoprite’s business, was increasingly maturing. “So as not to be trapped in a market with limited growth potential we have been positioning many of the 57 net new supermarkets opened during the year in developing areas with still untapped potential. A further 109 supermarkets are confirmed for 2014.”

At the end of June, its supermarket operations in South Africa consisted of a network of 801 stores split between its three chains, Shoprite, Checkers and Usave. Together they increased sales by 9,8% from R64,584bn to R70,926bn to produce a trading profit of R4,503bn (2012: R3,887bn). Internal food inflation during this time averaged 4,3% (2012:  4,9%) against an official food inflation figure of 6,1%.

Turnover in Shoprite, with 361 stores the largest of the three brands, slowed to 7,3%, partially caused by the increased pressure on consumers’ disposable income in the second half of the year. Despite intense competition, the chain nevertheless retained its high credibility rating with customers by sticking to its basic principles of value and price. It continues to dominate its sector by a large margin.

Checkers, on the other hand, defied the general market trend and reported excellent growth, increasing turnover by 10,7% in its supermarkets and hyper stores. With its strong focus on innovation, the chain has found a desirable market niche and has continued to grow its share of South Africa’s more affluent LSM 10 segment.

Usave with its typically small-format, no-frills stores, continued its expansion drive   in South Africa, bringing the national total to 243. During the period under review it increased turnover by 21,4%.

Basson said the Group’s supermarket operations outside South Africa where it trades from 192 stores in 16 countries, again showed solid growth. “Turnover increased by 27,9% and by 15,3% on a same-store basis, with the major impetus coming from Nigeria, Zambia and Angola. We managed to open 19 new supermarkets and we have a further 20 confirmed for 2014.” 

He said all the complementary in-store services, which are aimed at providing consumers with a one-stop shopping experience, had performed well. “These include our Money Market kiosks with their wide range of services, Computicket, our pharmacies trading as MediRite and our growing chain of LiquorShops.
In an environment in which trading conditions deteriorated markedly, the furniture division grew turnover by 4,7% compared to 11,1% in 2012. The OK Furniture and smaller OK1 Power Express chains, which account for about 65% of sales, nevertheless reported acceptable sales growth of 9,3%. Turnover in the more upmarket House & Home declined by 2,8%. After closing a number of unprofitable stores and opening 27 new one’s the division now operates 336 stores of which 39 are outside South Africa.

Looking ahead, Basson said consumers would be even more exposed to the impact of the weaker rand as it worked itself through the economy. “We have therefore decided to invest substantially in the Group’s price leadership position by absorbing some of the inflationary impact on the consumer. Although this is bound to put margins under pressure, we nevertheless expect to achieve acceptable turnover and profit growth in the new financial year,” Basson said.

Original source: Shoprite Holdings