Shoprite profits up, warns of intense competition

Local retailers are bracing for an industry shake-up as US giant Wal-Mart's entry through its 51% stake in Massmart (MSM) is expected to heighten the already fierce trading environment.

SA stalwart Pick n Pay (PIK) said Wal-Mart's entry would mean a fundamental change to its business operations and indicated that the group was ready to take the US retailer head on and beat them.

Shoprite too, seems up to the challenge.

"We're ready to deal with competitors. We will handle Wal-Mart like we handle the others [competitors]," CE Whitey Basson said.

A retail analyst told I-Net Bridge/BusinessLIVE that Massmart's vision within their food business to grow in the low-income and rural areas would mean head on competition with Shoprite.

Massmart aims to open 100 stores within the next three years, with a target of a 20 billion rand food retail business within five years.

Until now, the group's foray into food retailing has been aimed at consumers in LSMs (living standard measures) two to six, through its Cambridge Food stores that cater mainly to commuting shoppers in inner-city areas like taxi ranks.

In terms of its headline strategy of expanding into food retail, Massmart CE Grant Pattison points to Cambridge Foods, saying it is to be the group's "number one thrust".

Massmart wants to open up to 20 Cambridge stores a year for the next three years.

"Competition will intensify, but Shoprite has the upper hand. The returns they generate from stores are far superior to those of Massmart. It will be tough but Shoprite will continue to be the leader in the game for years to come," she said.

Beating analyst's forecasts, Shoprite reported diluted headline earning per share of 507.6 cents for the 12 months ended June, from the previous year's 451.6 cents.

The I-Net Bridge consensus forecast was for diluted headline earnings per share of 504.0 cents and a dividend of 252.0 cents per share.

"The business environment during the reporting period presented many challenges to the retail sector. Against the background of the lacklustre performance of the economy and the continuing increase in unemployment, the disposable income of consumers came under increased pressure from high household debt and the surging cost of essential services.

"Although the sale of certain durable goods saw a resurgence as more affluent consumers took advantage of more disposable income, spending on fast-moving consumer goods remained depressed with few factors present that could lead to an improvement in the short to medium term," Basson said.

The period under review was a 52 week reporting period compared to the corresponding period of 2010, which consisted of 53 weeks.

The group's core business, its South African supermarket division, reported positive sales growth of 7.2% from 53.367 billion rand to 57.214 billion rand, while its non-RSA supermarkets fared less well negated by the continued strength of the rand during the review period.

When converted to rand, the turnover of the 135 outlets the group operates outside the borders of SA increased by 2.1% compared to the previous year.

Aubrey Karp, the company's divisional director said Shoprite's furniture division experienced its toughest year in the past decade as consumer disposable income erosion continued and affected spending on durables.

The furniture division, which operates three chains - OK Furniture, House & Home and OK Power Express increased turnover by 1.9% to 3.060 billion rand.

"We don't foresee present market conditions to change materially in the new financial year," Shoprite said.

It added that it would continue to expand its operations into Africa and had made great strides in establishing a presence across the continent. With a market cap of over 55 billion rand, Shoprite trades in 16 countries and employs 95,050 people.