Feb 20, 2007
The Shoprite Group has reported turnover growth of almost 15% to R19,105 billion for the six months to end December 2006 despite 12 weeks of industrial action during that period that affected in particular the operations of the Shoprite brand. By the end of December 2006 it had substantially recouped the market share lost during the strike.
The strong growth the group experienced was fuelled by continued high consumer spending and by enhanced performance throughout the business, also in its non-RSA operations where each of the 16 countries in which Shoprite trades, improved on its previous best achievement. “What we accomplished in the six months,” Shoprite CEO Whitey Basson said, “was not boosted by windfall profits but was exclusively due to hard-headed trading and dedicated management.”
Basson said the group was increasingly benefiting from management’s decision to position the major brands as chains of destination stores offering consumers enhanced levels of convenience. “Although our primary business will always be food retailing, our offering spans an ever increasing range that now also encompasses furniture shops, in-store pharmacies, liquor stores, and consumer convenience services.
The 14,9% increase in turnover was supported by higher food inflation, which reached 8,0% for the six months compared to 2,8% in the corresponding period, and the turnover generated by the additional 40 outlets opened during the reporting period. The group’s internal food inflation rate was 5,6%.
The group was able to grow gross profit by 20,0% to R3,840 billion by boosting turnover in higher-margin perishables as well as increasing our non-food participation. At the same time costs were managed well within budgeted parameters.
The strong growth in turnover, the higher margins achieved and the slower increase in overhead costs combined to raise trading profit 27,9% from R560,9 million to R717,3 million.
Diluted headline earnings per share from continued operations rose 26,0% to 82,8c and the board declared an interim dividend of 35,0c per share, an increase of 29,6% on the dividend declared for the corresponding period.
The group’s supermarket operation in South Africa, generating more than 79% of total turnover, performed well by growing sales by 13,9% to R15,111 billion. The number of customer transactions increased by 6,1% to 42,8 million per month and the value per transaction by 7,3% as against the group’s internal inflation rate of 5,6%.
The repositioning of Shoprite, recently named South Africa’s number one retail brand in the annual Sunday Times / Markinor Top Brands Survey, and Checkers, which targets higher-income earners, has been completed, with each now operating in its own market segment. The differentiation between their customers has grown to the point where cannibalisation between the two brands has been virtually eliminated.
The group’s supermarket operations in the rest of Africa as well as India fared extremely well, growing turnover by 28,0%. Its first store in Lagos, Nigeria, performed well in its first year of operation. Its franchise store in Mumbai reported substantial increases in turnover and customer numbers.
Although consumer spending was most marked in the case of durable and semi-durable goods, the furniture sector had to contend with deflation in the case of particularly appliances and home entertainment items. The group’s furniture division nevertheless reported sales growth of 14,2% and profit growth of 14,8% despite margins being under pressure in a highly competitive environment.
Looking ahead Basson said he expected present trends to continue largely unchanged into the second half of the year.