Spar interim earnings up

Supermarket group Spar has reported diluted headline earnings per share of 192.2 cents for the six months ended March 2008 from 149.6 cents a year ago.

Headline earnings per share were up 28.7% to 201.2 cents from 156.3 cents a year earlier. An interim dividend of 100 cents per share was declared, up 37.9% a year ago.

Revenue was 21.1% higher at R13.06 billion, while operating profit grew 24.8% to R496.2m.

The group said it had again produced solid trading results buoyed in particular by strong volume growth. At retail, good organic growth, assisted by Spar's store remodel programme, new store openings and aggressive marketing activity resulted in market share gains. Distribution centre comparable turnover growth was 24.3%.

Maintains gross margin

The group maintained its trading gross margin at 8.1%. Expenditures were satisfactorily controlled, notwithstanding substantially higher fuel and transport costs (up 42.7%) and depreciation costs of R33m.

Spar retail outlets continued to trade well in a competitive market, with the group's 45th year anniversary providing an exciting promotional platform.

During the period, 15 new Spar stores were opened, taking total store numbers to 817. At March 31, the group serviced 197 SuperSpar, 463 Spar and 157 KwikSpar stores.

The remodelling of stores continued, with 85 stores having embarked on major upgrades. An ambitious new store opening schedule is in place for the remainder of the financial year, it said.

Excellent sales growth was achieved by TOPS stores. In less than six years TOPS has not only become the biggest retail liquor chain in store numbers, but is now measured as being the largest liquor chain in terms of turnover. Thirty-six new TOPS stores were opened during the period, bringing total store numbers to 321. Further store openings are planned for the balance of the year.

Building on success

Build it continued to achieve impressive sales growth through to the end of calendar 2007, but has since experienced a slowdown in building activity.

Turnover for the six months topped R1.1 billion, a growth of 25.8%. The supply of cement, which during 2007 was erratic, has improved. Build it opened 16 new outlets and now services 254 members and it is anticipated that a further 15 stores will open before year end September 2008.

During April 2008 the group commenced trading operations from its new Cape Town distribution centre, which enabled the division to consolidate operations onto a single site. While the new facility will bring an increased level of cost, operational efficiencies from the move will be achieved.

New technology on the way

It is anticipated that once trading operations have settled, radio frequency and voice picking technologies will be introduced. These technologies have resulted in improved operating efficiencies and stock-picking accuracy in the group's other distribution centres. Spar's present facility in Montague Gardens will be vacated at the end of May 2008.

Expansion of the group's South Rand distribution centre is on track. The expansion will result in additional dry goods warehouse space becoming available by November 2008, followed by further perishable space in October 2009. The cost of the project is estimated at R265m.

Construction of a new perishable facility at Mount Edgecombe, KwaZulu-Natal, will commence shortly. This facility, estimated to cost R185m, is scheduled for completion in September 2009.

Aiming to beat load-shedding

The group's forecast 2008 capital expenditure remains unchanged at R400m. The group has installed diesel generators at four of its six distribution centres, with generators to be installed at the remaining two distribution centres by financial year end.

The group is confident that it has adequate plans in place to cope with load-shedding and is actively encouraging retailer members to review their ability to trade in the event of power outages.

Spar said although a slow down in economic activity is anticipated, increased marketing spend together with planned retail store openings and remodels augur well for real turnover growth. Strong cash generation will continue, notwithstanding the capital expenditure programme.

"The group is confident that it will again achieve satisfactory revenue and profit growth during the remainder of 2008," it concluded.

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