Despite Shoprite delivering double-digit first-half sales growth, its profit margins are under pressure due to load shedding.
In an operational update for the six months ended January 1, 2023 the largest grocer said to operate generators across its South African supermarkets’ store-base to trade uninterrupted during load shedding Stages 5 and 6, had amounted to R560 million for the period.
But a record Black Friday and festive season boosted the local supermarket’s division to achieve sales growth of 17.5% during the period. On a like-for-like basis, Shoprite’s sales increased by more than 11%. This segment, which accounts for just more than 80% of group sales was also able to raise selling prices by 9.4%.
“The growth in sales reflects a record Black Friday and festive season, underpinning 46 months of uninterrupted market share gains,” it said.
Shoprite posted a total sale of merchandise increase of 16.8% to about R106.3 billion.
The first-quarter sales growth was supported by LiquorShop closures during the first quarter last year, whereas second-quarter sales growth was reported against a second quarter last year in which LiquorShop traded unrestricted for the whole period.
Checkers and Checkers Hyper reported sales growth of 16.9%, while Shoprite and Usave reported sales growth of 15.1%. Supermarkets RSA LiquorShop sales increased by 35.6%.
Shoprite invested in selling prices to counter the impact of inflation for customers, thereby saving its Shoprite and Checkers Xtra Savings customers R7bn over the period.
“This, together with the impact of the about 56% year-on-year increase in fuel price on our supply chain operations will result in the segment reporting a marginally lower gross margin for the period,” Shoprite said.
The group’s furniture segment, made up of OK Furniture, OK Power Express, and House & Home reported an increase in sales of 8.6%, while like-for-like was 5.0%.
Shoprite said, excluding the stores acquired from Massmart Holdings which will be included in the stores opened in the second half of the financial year, and social unrest store closures and reopenings, its South African supermarkets added a net 191 stores during the past 12 months to total 1 953 stores.
Its non-South African sales, its reporting currency being the rand, increased by 17.5%, contributing 9.4% to group sales.
In constant currency, Shoprite’s non-RSA supermarkets increased sales by 6.9%.
“Our three stores in the DRC were closed during the period and as such, the region has been classified as a discontinued operation,” Shoprite said.
The segment’s store base decreased by a net five stores, three of which were situated in the DRC, over the past 12 months to end the period with 227 stores.
The group expects to release its interim results on March 7.
Anchor Capital equity analyst Zinhle Mayekiso said Shoprite released a solid operational update.
“Sales growth was strong, driven by higher selling price inflation and increased volumes, which point to Shoprite’s continued market share gains within the SA food-retail complex.
“However, despite the positive sales growth achieved during the period under review, Shoprite’s gross profit margins have come under pressure due to increased costs arising from intensified load shedding.
“But the adverse effects of load shedding are a headwind to all local corporates operating within South Africa. Consequently, we will likely witness increased margin pressures across all corporates based in South Africa and are directly impacted by the harmful effects of load shedding,” Mayekiso said.
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