South Africa's Shoprite shares slump after bleak outlook

Reuters
A customer shops at a Shoprite store in Johannesburg
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A customer shops at a Shoprite store in Johannesburg, September 7, 2013. REUTERS/Siphiwe Sibeko

By Tiisetso Motsoeneng

JOHANNESBURG (Reuters) - South Africa's Shoprite warned of a continuing squeeze on the country's consumers after posting its slowest profit growth in 15 years, sending its shares to a five-month low.

Once among the must-haves in fund manager portfolios thanks to the impact of credit-fuelled spending over the past few years, local retailers are now among the worst-performing stocks as banks pull back on unsecured lending.

Some investors fear spending could diminish further because household debt has grown to about 75 percent of disposable income, just as the economy hits a rough patch.

"There's not much relief in sight for the beleaguered South African consumers," said Whitey Basson, Shoprite's managing director. "What was experienced on the sales floor was a reflection of the country's broader economy."

South Africa's economy shrank in the first quarter, hit by a drop in consumer spending that had boosted expansion of closer to 5 percent before the country slipped into recession in 2009.

Shoprite, which focuses on staple products for low-income and working-class consumers, was also hit this year by a five-month stoppage in the platinum sector, the longest strike in the country's history.

The company said the strike cost it about 1 billion rand ($94 million) in lost sales, about 1 percent of its total.

Shoprite, Africa's biggest retailer, reported a 3.3 percent rise in full-year headline earnings per share to 6.97 rand, well below a 7.29 rand estimate in a Reuters poll of 16 analysts.

Headline EPS, the most widely watched profit gauge in South Africa, strips out certain one-off items.

"We have been getting a consistent message from companies that the South African consumer is in trouble," said Wayne McCurrie, a portfolio manager at Momentum Investments. "Shoprite results are another confirmation of that message."

CONSUMER DEBT

South Africa's biggest unsecured lender African Bank almost collapsed last week, blaming customers being unable to meet monthly debt repayments.

Shoprite shares tumbled as much 8.8 percent and by 1147 GMT were down 6.4 percent at 144.11 rand, on course for their biggest daily percentage decline since June 2006. The stock fell as low as 140.57 rand, its lowest since early March.

Shares in major retailers such as Truworths, Massmart and JD Group have dropped between 11 and 20 percent in the past year, lagging an almost 20 percent gain in the broader JSE All-share index.

Shoprite, whose shares have fallen about 10 percent over the past 12 months, said sales increased 10.5 percent to 102.2 billion rand ($9.6 billion) thanks to 125 new stores and a robust showing by its chains elsewhere in Africa.

The Cape Town-based company, which has stores in several other African countries including Nigeria, Angola and Zambia, said outlets outside South Africa delivered a 27 percent rise in sales, about three times the growth rate at home.

Shoprite, as well as other local retailers, has been pushing into the rest of Africa, where a nascent but fast-growing middle class is boosting demand.

"One store in Nigeria sells 350,000 bottles of wine a year, that's more than the nine stores in Winelands," Basson said, referring to a Cape Town region where some of South Africa's best-known wines are produced.

Basson also said his company would invest 1.5 billion rand in new stores and distribution facilities outside Africa, where it runs 169 outlets.

The company would open 30 stores in those markets by the end of the current fiscal year, Basson said, adding the retailer had identified a further 177 sites where it could open outlets.

(1 US dollar = 10.6315 South African rand)

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