Disappointing annual sales numbers for Shoprite

South Africa’s biggest food retailer Shoprite Holdings saw its shares slide after reporting a 7% rise in full-year sales that fell short of analysts’ estimates.

Shoprite, which runs discount grocery stores, said on Monday total sales rose 7.3% in the year to end-June, to about R72.3-billion. A Thomson Reuters poll of seven analysts expected R74.4-billion.

“When you look at the number in isolation, it is still an astonishingly good performance in a very tight, competitive environment,” said Syd Vianello, analyst at Nedcor Securities.

“But the fact is, the market was expecting more.”

Shares in the company fell 1.8% to R102.26, underperforming a 1.3% drop in Johannesburg’s Top 40 index of blue-chips.

Consumer demand is recovering in South Africa after a contraction in 2009, helped by 6.5 percentage points of interest rate cuts that have pushed borrowing costs to historic lows.

SA optimism
However, analysts and fund mangers caution the recovery is not enough to justify the high valuations of retailers.

Shoprite trades at around 20.5 times its forward 12-month earnings—according to Thomson Reuters data—compared with some 15 times at Australia’s Woolworths.

Vianello said he has been urging clients to dump the stock over the past year.

“People have been piling into South African stocks on optimism, but the stark reality is that things are very tough in this economy,” he said.

Although latest data shows South Africa’s retail sales accelerating almost 10% in April, sales growth has been much weaker than expected this year.

Shoprite’s mainstay South African business increased sales by 7.2%, while its 114 supermarkets in the rest of the continent lifted sales by 2.1% in rand currency terms.

The group furniture unit grew turnover by 1.9% as indebted consumers continue to put off buying big-ticket items.—Reuters

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