Shoprite grows profit but margins suffer

Shoprite’s first-half profit climbed as Africa’s largest supermarket chain attracted more shoppers in its core South African market.

Net income surged 20% from a year earlier to R3.25 billion in the six months that ended 1 January, the Cape Town-based company said in a statement on Tuesday.

Trading profit at its South African supermarket business rose 7.7% to R5.4 billion, said the owner of chains including Checkers and U-Save. The firm has added 1.4% to its market share in the country, it said.

Still, profit growth was stymied by South Africa’s regular rolling power outages. Trading margins at the unit slid to 6.3% from 6.9% as Shoprite spent R560 million on diesel for its generators at stores.

“We are disappointed that as a result of the diesel expense, to mitigate the impact of load-shedding during the period, we are not reporting the level of profit and dividend growth normally associated with such a notable achievement in terms of sales growth,” Chief Executive Officer Pieter Engelbrecht said.

Africa’s largest grocer declared an interim dividend of 2.48 rand per share, up from 2.33 rand a year earlier.

A further R245 million in insurance proceeds, relating to damage incurred during social unrest in 2021, helped offset some cost increases.

The retailer expects to open 238 stores in the second half, on track for 512 new stores across the group in the year through June.

That’s as it drives sales to low-income domestic customers following the acquisition of chains from Massmart.

Two decades after unveiling ambitious growth plans to expand across Africa, Shoprite has largely retreated to its home market of South Africa after struggling with supply-chain disruptions and troubles with repatriating funds.

The stock has declined 0.4% this year, compared with an 8.1% increase in the FTSE/JSE Personal Care, Drug, and Grocery Stores Index.

“The ongoing cost to our economy in terms of growth and investment is devastating,” Engelbrecht said, referring to the national power cuts. “As is the impact on the everyday lives of South Africans, most of whom are already dealing with considerable hardship.”