Financial Mail and Business Day

Spar share plunges on weak trading update

Katharine Child

Spar ’ s share price tumbled as much as 17% on Wednesday afternoon after the company released a trading update indicating a potential 35% fall in its headline earnings per share for the six months to end-March.

By 4.30pm the share had recovered a little to be down 14.24% to R106.89.

The company reported having to put through cost increases leading to lower-than-expected sales across all its regions, attributing this fall to various factors. Spar operates as a wholesaler, supplying independent stores in SA, Ireland, Switzerland and Poland.

There was positive news in Ireland and South West England, where turnover increased by 8.8% in euro. In Poland, where its wholesale business has been unprofitable, it faced challenges such as higher fuel, labour and energy costs, along with increased interest rates.

In SA, Spar saw a 10.8% increase in prices, while sales grew only about 7.9%. As a result, the company sold lower volumes compared with the corresponding period.

Another contributing factor was the installation issues encountered during the implementation of a new SAP software system at the KwaZuluNatal distribution centre, which led to reduced sales. Furthermore, marketing and IT costs rose 19% and 52% in SA with fuel, energy and distribution costs up 27%.

The company’s subsidiary, Build it, reported a 3.1% drop in sales compared with the previous period, in line with other building retailers’ sales that are down since the home improvement boom experienced in the early and middle parts of the Covid-19 pandemic. Liquor sales fell nearly 2%.

Switzerland also experienced a 4.3% slowdown in sales, albeit off a fairly high base, when consumers opted to shop closer to home during the pandemic.

However, now that borders have reopened, people have started crossing into neighbouring Germany for more affordable shopping. Spar’s turnover was additionally affected by the transfer of a group of petrol convenience corporate stores to independent retailers in 2022, resulting in a loss of retail turnover.

Spar’s overall turnover increased 7.9% to about R72.9bn. It faces significant levels of debt and has been negatively affected by rising interest rates.

Its headline earnings per share, a main profit measure in SA, are expected to be 25%-35% lower at 417.7c-482.0c.

COMPANIES

en-za

2023-06-01T07:00:00.0000000Z

2023-06-01T07:00:00.0000000Z

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