Shoprite unveils expansion plans

South Africa's largest food retailer on Tuesday, 24 August 2010, said it plans to open 85 new stores in the coming financial year, the group also said it has increased expenditure on training and recruitment and expects to create around 5700 jobs.

HEPS

Earlier on Tuesday, Shoprite, which strives to offer low prices on goods in the retail market, reported diluted headline earning per share of 451.6 cents for the 12 months ended June 2010, up 15.6% from the previous year's 390.8 cents. Diluted earnings per share increased 15.6% cents from 386.3 cents to 446.4 cents.

Chief Executive Officer Whitey Basson said that during the period the group continued to build on its historical price positioning which is to consistently offer low prices on the most important basic foods.

"By sticking to these principles, the Group was able not only to retain the loyalty and support of customers across the spectrum, but also to extend its customer base," he said.

The board declared a final dividend of 147 cents per share from 130 cents in 2009, an increase of 13.1%. This brings the total dividend for the year to 227 cents per ordinary share from 200 cents in 2009.

The I-Net Bridge consensus forecast among ten analysts was for diluted HEPS of 437.1 cents and a total dividend of 222.1 cents per share.

Operating profit for the year was up 16.3% to R3.387 billion and total turnover was 13.6% higher at R67.402 billion.

Great performance, good strategy

Overall a very robust set of results, in line with market consensus. Shoprite has outperformed in its market. The expansion plans are a good strategy since the company is doing well and it will also be the first time that the company will have to source funds externally, growing their footprint at a faster rate, said a retail analyst.

In a presentation of the group's results, Shoprite said it would seek external financing for its high capital investment to fund growth in South Africa, as well as the rest of the continent.

"We will borrow close to R1.5-2 million, depending on how much we need. At this point I cannot say where we will borrow it from," said Managing Director Carel Goosen.

Above expectations

Trading in a relatively tepid environment, with high consumer debt still an issue and an unemployment figure of around 25%, the group beat expectations and increased its trading margin from 4.96% to 5.18% - its highest ever level.

Despite the economic downswing the group added a net 87 outlets during the year bringing its total number of outlets in out Africa to 1015 and 151 outside RSA borders.

Basson said that the group's RSA supermarkets segment with its three main chains Shoprite, Checkers and Usave, had again been the best performing area of the business, producing turnover of R53,4 billion for the 53-week period compared to R46,6 billion for the 52 weeks of the previous year, while trading profit was 19.6% higher at R2,8 billion.

The Shoprite chain has always been ideally positioned to benefit from tough conditions. Adding a net 11 stores during the year, it increased total turnover by 13.5% while the value per transaction was up 6.6%, Basson said.

Usave chain grows

Basson said the small-format Usave chain had grown strongly during the year, opening new stores at a rate of almost one a week, which enabled it to increase turnover by 33.5%.

Shoprite said that the period under review had been the toughest year in the past decade for the furniture sector, accentuated by extreme economic high and lows.

Electrical product range competitiveness was at an all time high but significant interest rate reductions failed to reduce consumer debt exposure and the erosion of consumers' disposable income affects spending on durables, said the retailer.

OK Furniture reported the strongest turnover growth in the group's furniture division at 17.3%.

World Cup impact

The run-up to the Soccer World Cup in the last three months of the reporting period fuelled a demand for the latest technology television sets. This spurt in sales helped push total turnover 16.7% higher to R3,0 billion with sales in existing stores up 10.9%. To compete effectively in a fiercely contested market, profit margins were sacrificed with a resultant decline in profitability, said Basson.

African growth

The group's African operations saw turnover growth in constant currency terms, which averaged at 18% in a low inflationary environment.

Due to the strength of the rand relative to dollar and the weakening of most African currencies in which the group trades, the revenue of R7,2 billion generated by this segment translated into a turnover decline of 2.1% in rand terms compared to the previous year. Owing to improved gross margins, trading profit was 17.2% higher at R486 million, said Basson.

As part of its expansion plans, Shoprite said it will open new stores in Angola, Namibia, Mozambique and Nigeria.

Competing for market share

Also on Tuesday, Shoprite declared itself the leader in the very hot, and contested battle for market share.

According to the revised information now used by Nielsen, the group holds a 34.4% share of the market for the month of June and 32.6% for the year, the highest of all supermarket groups in South Africa, up from 31.4% a year ago, said Shoprite.

In October last year Shoprite claimed that it had the largest share of all supermarket groups in South Africa with a 31.67% share of the market.

Pick n Pay disputed this by saying Shoprite's claims were "hogwash" and that it was the leader in market share, with 34.7% claim, backed by research firm Nielsen.

Watch this space on 21 October when Pick n Pay reports its interim results and the market share mini-series continues.