August 20, 2019 / 10:15 AM / a month ago

Shoprite misses forecasts despite stronger home market

JOHANNESBURG (Reuters) - Shoprite Holdings (SHPJ.J) missed full-year earnings forecasts on Tuesday, hit by inventory shortages in South Africa and currency devaluations in the rest of Africa, which overshadowed an improved second half in its home market.

FILE PHOTO: Ready to eat meals are displayed at an outlet of retailer Shoprite Checkers in Cape Town, South Africa, June 15, 2017. REUTERS/Mike Hutchings/File Photo

The owner of Checkers and Usave retail chains is recovering from a poor first half when sales and profit were hit by a strike at its largest distribution center at home and installation of a new IT system which disrupted supply chains.

The retailer reported significantly improved growth in the second half, driven mainly by its Supermarkets South Africa operation, where sales rose by 7.4% in the six-months ended June 30 and 9.4% in the final quarter. This business generates 74.9% of group sales.

“We believe that the market share gains reflected in the most recent quarter are testament to our core South African business being back to full operational strength,” Chief Executive Officer Pieter Engelbrecht said in a statement.

But the improved second half was not enough to lift basic headline earnings per share, which fell 19.6% to 780.8 cents in the full-year to June 30, compared with a restated figure of 971.4 cents a year earlier. Diluted headline earnings also fell by 19.6%.

Analysts had forecast a fall of 15.5%, IBES data from Refinitiv showed.

At 0920 GMT, Shoprite’s shares were down 2.25%.

“Notwithstanding the much improved recent performance in our core Supermarkets South Africa division, it was a testing year,” Engelbrecht said.

“A constrained economy, inventory shortages post industrial action and the implementation of a new enterprise wide IT system across our store base resulted in lost sales.”

In-stock levels at the Supermarkets South Africa business are now higher than before it implemented the new system, Engelbrecht added.

The retailer, with more than 2,900 stores, also blamed 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 countries such as Zambia and Nigeria, the rest of Africa business reported a trading loss of 265 million rand ($17.19 million) for the year.

Engelbrecht said Shoprite remained committed to its customers in the 14 African countries it operates in outside South Africa, despite there being no respite in short-term trading conditions in the rest of Africa region.

“With respect to non-South Africa, persistently challenging trading conditions in the year ahead are likely to hamper our ability to return to profitability,” the retailer said.

Reporting by Nqobile Dludla; editing by Jason Neely and Jane Merriman

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