Spar Group, Spar International's retail business in South Africa, has forecast "another challenging year" in 2010 despite posting strong underlying profit growth in its most recent fiscal year.

The retailer booked a 25% jump in trading profit to ZAR1.21bn (US$163.5m), while headline earnings per share - a key financial measure for firms listed in South Africa - climbed 19.5% to 484.8 cents. Turnover also grew by 19.5%, reaching ZAR31.96bn.

"The year was one of two halves," the company said. "During the first six months food inflation ran at an average of 16% and group turnover during this period increased 24.5%. The second six months saw food inflation decline significantly to an average of 9%, which, with increased pressure on consumer spending, resulted in a sharply reduced turnover increase of 14.9% for the period."

Food inflation is set to "continue to run at lower levels", the company said.

"Management expects 2010 to be another challenging year but are nevertheless positive about the opportunities for the business," it added. 

"It is anticipated that the current relatively low levels of trading activity will continue for at least the first half of the 2010 financial year, whereafter it is likely that volumes will increase."

Spar Group runs around 850 Spar stores in South Africa.