Food and furniture retailer Shoprite has reported a 55,4% rise in its headline earnings per share (Heps) for the six months ended December 2004, to 60,6 cents from 39 cents a year earlier. The group said it envisages declaring an interim dividend of 22 cents per share, representing a 33,3% increase on the 16,5 cents declared at the interim stage in 2004.
The results for the six months comprise 27 weeks, compared with 26 weeks in the year-earlier period. Adjusting for this extra week, Shoprite said Heps would have been 30,8% higher at 51 cents. Adjusted for exchange differences, Heps would have come in at 61,7 cents, a 39,3% increase.
Total turnover rose by 14,2% to R15,25-billion from R13,36-billion a year earlier, with the group’s non-South African operations achieving sales growth of 26,4% in stable currency terms.
Operating profit before exchange differences was up 47,7% (or 25,2% on a 26-week basis) to R466,2-million.
Shoprite’s net asset value per share rose by 22,8% to 464 cents.
CEO Whitey Basson commented: “Although experiencing internal food deflation in all our operating chains, the group nevertheless managed turnover growth of 14,1% for the 27 weeks under review compared with the 26 weeks of the corresponding period a year ago.
“This was achieved by growing the number of customer store visits combined with an increase in basket size.
“Most pleasing was the strong spurt of 47,7% in operating profit before exchange differences, which generated a net profit margin of 3,06%, the highest ever achieved by the group. Our ambitious new-store programme announced last year is on track and we will continue to grow strongly in all our markets.”
Basson added that food inflation fell to only 1,5% in December 2004 from about 2,6% in December 2003, and there are no indicators suggesting that this will change in the short term. However, strong consumer confidence has stimulated sales, particularly of durable goods.
Shoprite is being forced increasingly to source its merchandise from outside South Africa but, given the continued strength of the rand, mostly to its stores outside South Africa.
The group has been able to lift its profit margin to a record level due to greater efficiency in sourcing and replenishment, augmented product ranges and improved sales of higher-margin non-food items, the CEO said, as well as relentless efforts at shrinkage control.
Exchange rate losses improved to R6,9-million over the period from R31,5-million the previous year, due to higher exposure to other currencies. At the same time, exceptional items fell to R18,7-million from R80,7-million, mainly due to an end to the amortisation of the negative goodwill arising from the OK Bazaars takeover.
Looking at the performance of Shoprite’s various store brands, Basson said all had reported good turnover growth despite internal food deflation of between 0,3% and 1,3% across different brands. The group had marginally increased its market share, despite opening fewer top-end stores within South Africa than its main competitors, he noted.
The group’s supermarket brands include Shoprite, Checkers, Checkers Hyper, Usave and Hungry Lion. Its furniture store brands comprise OK Furniture and House & Home.
In the supermarket division, combined revenue rose by 13,5% to R14,42-billion over the 27 weeks (up 9,7% to R13,94-billion over 26 weeks). Customer visits to the 510 stores rose by 7,2%, while basket size was 3,6% higher. This lower growth in basket size should be seen against the background of food-price deflation, commented Basson.
In the furniture division, revenue increased by 19,7% for the 27 weeks to R1,1-billion, and 16,3% on a 26-week basis, while operating profit was up 34% to R98,6-million.
The group’s OK Franchise is back on an even keel and performing satisfactorily, the CEO said. All the businesses are being well managed and operating results are expected to improve in the next six months.
Turning to operations outside South Africa, where the group has stores in 16 other countries, Basson said sale growth was 23,7% in stable currency terms on a 26-week basis. In rand terms, turnover growth was 10,3%. During the six months, Shoprite started trading as a wholesale operation in India and in its first franchised Hyper in a modern shopping centre in Mumbai.
“Management is excited about the enormous potential for growth in the subcontinent,” he noted.
Looking ahead, Basson said: “We do not foresee any material changes occurring in the next six months in the retail environment in which the group operates. Food inflation will remain low, so we will continue our strategy of increasing and further upgrading our non-food product offering.
“We are looking forward to continued turnover growth from our major supermarket brands and we are confident that the group will be able at least to maintain its present level of profitability.” — I-Net Bridge