* 2nd half sales up 6.5% vs 0.2% growth in 1st half
* South Africa business back at full operational strength
* Flags lower annual earnings
* Rest of Africa to log annual trading loss (Adds details, shares)
By Nqobile Dludla
JOHANNESBURG, July 30 (Reuters) - Shares in Shoprite Holdings surged 15% on Tuesday after Africa’s largest supermarket chain forecast an improved second half on solid sales in its South African home market though it warned annual earnings were set to drop as much as 20%.
The supermarket and furniture retailer is recovering from a poor first half when sales were hit by a strike at its largest distribution centre in South Africa and installation of a new warehousing system which disrupted supply chains.
Elevated household debts, higher fuel and electricity prices and an increase in value-added tax also squeezed consumer income at home, while sharp currency devaluations elsewhere in Africa weighed on profit.
Sales in the six months to June 2019 rose 6.5%, driven by the South African supermarkets, which saw revenue grow by 7.4% in the second half and 9.4% in the final quarter, the Cape Town-based group said in a statement.
“The market share gain in the most recent quarter is testament to our core South African business being back to full operational strength,” Chief Executive Pieter Engelbrecht said.
Shares in Shoprite jumped 15% in early trade before paring gains to trade 7.35% firmer at 156.30 rand at 1026 GMT.
“The really good news is the second-half of the year was significantly better and the best bit of information there was South Africa supermarkets which showed really nice turnover growth,” FNB Wealth and Investments Portfolio Manager Wayne McCurrie said.
Annual sales in Supermarkets South Africa are seen rising 4.9% on better customer and volume growth, as well as an improvement in “on-shelf availability and promotional effectiveness”, the company said.
Shoprite, with more than 2,800 stores in 15 countries, said it expected basic headline earnings per share (HEPS) for the 52-weeks ended June to be between 774.2 cents and 832.5 cents per share, a drop of 14.3% to 20.3%, compared with the restated figure of 971.4 cents during the same period a year ago.
“The rout of the first half was so deep that for the full-year their earnings are still going to be down, but the market is looking ahead to the momentum that was seen in the last quarter of their year,” Sasfin Wealth Equity analyst Alec Abraham said.
The retailer blamed the earnings warning on currency devaluation in markets such as Angola - its biggest operation outside South Africa - a trading loss outside its home market, higher minimum wages and rent and electricity costs at home.
As a result of the currency depreciation in Angola and other large countries such as Zamiba and Nigera, sales for the rest of its Africa operations declined 7.7% in the full-year and posted a trading loss for the period.
“Trading conditions in the rest of Africa remain relentless as the results attest,” Engelbrecht said.
$1 = 14.2004 rand Additional reporting by Tanisha Heiberg, editing by Louise Heavens and Emelia Sithole-Matarise