Major South African retailer rebounds

SPAR expects to report solid results from its continuing operations for the 2024 financial year, as the company is in the final stages of selling its Polish business.

This is a significant improvement for the struggling retailer, which has been plagued in recent years by a botched software integration and a costly European expansion that did not perform as expected. 

With over 2,000 grocery and liquor stores nationwide, the retailer has the second-largest footprint of any South African food retailer. 

Since its launch in South Africa in 1963, SPAR has been known for its convenience, quality products, and community-focused stores. 

However, in recent years, its image has been tarnished by the botched integration of a SAP enterprise resource planning (ERP) system and its poor European acquisitions. 

The retailer’s latest trading update shows that the tide may be turning for SPAR, with solid earnings growth and progress on the sale of its loss-making Polish business.

In a trading statement released on Thursday, 21 November, SPAR outlined its earnings expectations for the financial year through September 2024.

The retailer expects its headline earnings per share (HEPS) to increase by between 6% and 16% and its earnings per share (EPS) to grow by between 20% and 30%.

In the statement, SPAR explained that consumers continue to be constrained across the retailer’s various territories, resulting in lower turnover growth in the second half of the financial year.

However, despite inflationary pressures, operating costs were well managed across the group.

The retailer said ongoing IT system issues at its KwaZulu-Natal distribution centre impacted gross margin, which negatively affected the profitability of its Southern African segment. 

However, system enhancements activated in the latter part of the second half of the financial year have been positive, reflecting some improvements in service levels and trading margins, which are expected to continue in the 2025 financial year.

In addition, notwithstanding the negative impact of high interest rates on the retailer’s finance costs, its net debt was reduced by R2 billion, from R11.1 billion to R9.1 billion. 

On a continuing operations basis, SPAR’s net EBITDA ratio improved to 2.44 times as of 30 September 2024 from 3.07 times earlier this year.

In its trading statement, SPAR also provided an update on the sale of its Polish business.

SPAR Poland has officially been classified as a discontinued operation and has been reported as a disposal group held for sale from 1 December 2023. 

As part of the process of exiting this market, the recognition of the negotiated sale terms and ongoing evaluation of SPAR Poland has resulted in a material impairment in the value of the assets held for sale in the Polish disposal group.

SPAR further explained that the negotiated sale was approved by the Polish antimonopoly authorities on 19 November 2024.

“The purchaser is now in the process of completing a final confirmatory due diligence, to be completed within 30 business days of the receipt of this approval, whereafter it is expected that the sale will be completed,” the retailer said.

Including SPAR Poland in the retailer’s results paints a different picture of the company’s performance.

With discontinued operations included, SPAR expects to report an increase in HEPS of between 16% and 26% but a decrease in EPS of between 17% and 7%.

Therefore, the sale of SPAR Poland that is soon to be completed bodes well for SPAR’s performance in the 2025 financial year.