Shoprite Full-Year Profit Misses Estimates as Costs Climb

Shoprite Holdings Ltd. full-year profit missed analysts’ estimates as South Africa’s largest food re…

Shoprite Holdings Ltd. full-year profit missed analysts’ estimates as South Africa’s largest food retailer invested in new stores amid weak consumer spending in its domestic market. The shares fell the most in two years.

Earnings per share excluding one-time items rose 3.3 per cent to 6.98 rand in the 12 months through June, the Cape Town-based company said today in a statement. That compares with the 7.35 rand mean estimate of 15 analysts surveyed by Bloomberg. Sales gained 11 per cent to 102 billion rand ($9.56 billion), while the total dividend was raised 3.6 percent to 3.50 rand.

"With economic growth expected to remain below 3 per cent in the new financial year, there is not much relief in sight for the beleaguered South African consumer," Chief Executive Officer Whitey Basson said in the statement. "The improved sales growth in the last quarter of the 2014 financial year has continued into July and beyond, but with market conditions unchanged, it is doubtful whether this can be sustained."

Shoprite shares fell as much as 7.6 per cent, the biggest intraday slide since March 2012, and traded 7 per cent lower at 143.29 rand as of 10:06 a.m. in Johannesburg. The stock has fallen 13 percent this year, compared with a 6.6 per cent decline on the FTSE/JSE Africa Food & Drug Retailers Index.

Heavy Investment

South African retailers are struggling as high unemployment and rising inflation forces shoppers to cut down on major purchases. Retail sales were unchanged in June, with inflation at 6.6 percent. The South African Reserve Bank raised its benchmark interest rate for the second time this year on 17 July, cutting disposable income for borrowers.

Revenue growth at the company’s South African supermarket operation was 8.7 per cent, compared with 9.8 per cent growth a year earlier, while furniture division sales grew 12 per cent. Trading profit margin declined to 5.6 per cent, as the company spent 1.6 billion rand on 125 new stores.

"We invested heavily in the future of the group in anticipation of the next upswing in the economy,” Basson said. “This was achieved in an environment of constantly rising costs, especially in the areas of electricity and energy over which we have no control."

Revenue from outside South Africa, which accounts for almost a fifth of Shoprite sales, increased by 27 per cent, in line with the previous year. The company added 16 African stores outside its home market, brining the total to 169 across countries including Angola, Zambia and Namibia.