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The share price of Africa’s largest food retailer Shoprite topped a 52-week high on Monday, with the stock gaining almost 4,5percent on the back of a very strong trading update and the market digesting news of its planned R1,36 billion acquisition of Massmart’s Cambridge Food, Rhino Cash & Carry and Fruitspot businesses.
Shoprite’s latest update reveals that the group’s mainstay South African business showed double-digit sales growth in the second half of the 53-week period to July 4, 2021.
Dubbed Supermarkets RSA, the local division contributes 79,7percent to sales from continuing operations.
Sales growth
In the first half of its financial year, Shoprite’s core business saw sales grow 5,6 percent. That was during its busiest part of the year — the June to December period which includes Black Friday and the festive season.
But in the second half (of the 53-week period), Shoprite saw sales surge 13,2 percent in “Supermarkets RSA.”
This is more than double the sales growth it achieved in the first half of its financial year, which saw overall sales growth in its SA business increase to 9,3 percent for continuing operations. The group noted however that like-for-like sales growth for the division came in at 7,3 percent for the 53-week period.
Shoprite’s upper market Checkers-branded chain as well as its furniture division (OK Furniture and House & Home), are seeing the strongest growth.
“Checkers and Checkers Hyper reported sales growth of 10,9 percent (first half sales growth 11,1 percent, second half sales growth 10,8 percent). This is notwithstanding the high base reported for the second half period last year,” the group notes in its trading update.
Shoprite further points out that its furniture business increased sales by 24,6 percent over the 53-week period, with first half sales growing by 15,7 percent and second half sales surging 38,6 percent.
However, with the group closing 16 of its furniture segment stores, like-for-like sales for the full period grew 13,5 percent.
While its lower end Shoprite and Usave supermarket chains saw slower sales growth of 5,6 percent in the first half of its financial year, it reported a much stronger second-half, with sales growth of 12 percent.
Acquisition
The group is set to expand in the lower end of the retail market, with its acquisition of Massmart’s poor-performing Cambridge Food, Rhino, Masscash cash and carry and Fruitspot businesses in something of a surprising deal announced late on Friday.
Rival Pick n Pay was also in the running for Massmart’s lower end food retail chains.
The deal with Massmart will see Shoprite acquiring 56 grocery stores (including 43 adjacent liquor shops), 12 Masscash cash and carry stores, the Fruitspot business and a meat processing facility.
It is expected to be finalised early in the first quarter of 2022, in the second half of Shoprite’s next financial year.
Shoprite is known for taking over struggling chains and turning them around, leveraging off its position as the continent’s largest food grocer.
“We are focused on our low-price leadership position and furthering our reach in terms of getting closer to more of our customers. Our plans in this regard incorporate both organic and acquisitive growth,” Pieter Engelbrecht, CEO of Shoprite Holdings notes in the group’s voluntary Sens statement on the deal.
“The rationale for this transaction is not just premised on the fact that, as a result of our operational expertise, we believe we can profitably run these operations; it also gives us immediate access to opportunities that were on our medium-term to-do list.
“We are well positioned to integrate and grow these businesses and as a result, Shoprite can ensure the sustainability of employment of the staff within these businesses,” he adds.
Exits
Shoprite has changed its direction in recent years, choosing to double down on its core home market and cut back, close or dispose of its operations in countries like Nigeria and Kenya.
The group’s Supermarkets RSA business opened a net of 87 stores during the 53-week period according to its latest trading update.
Shoprite also notes in the update that “in line with the group’s Non-RSA (business) review process” its operations in Madagascar and Uganda have now been classified as discontinued.
“Supermarkets Non-RSA continued to operate in regions challenged by macroeconomic and consumer affordability constraints, exacerbated by the impact of Covid-19 restrictions and regulations. Notwithstanding these factors, constant currency sales from continuing operations [in this division] increased by 6,8 percent.”
However, Shoprite says currency devaluation continues to weigh on reported sales in its rest-of-Africa operations.
“In rand terms, Supermarkets Non-RSA’s sales from continuing operations declined by 7,5 percent,” says the group. – Moneyweb.
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