Dis-Chem readies next big move in South Africa

Dis-Chem has upped its dividend amidst higher profits, with the group hoping to add 30,000 sqm of new retail space in the medium term and start operating as a life insurer early next year.

In its interim financial results for the six months ended 31 August 2024, the group said that it made pleasing progress in each of its eight strategic areas of focus, which aim to deliver sustainable shareholder returns.

The biggest contributor to earnings growth was the containment of the group’s payroll cost, which helped deliver positive operating leverage, with operating profit growing at 17.5% ahead of Group revenue growth of 9.6%

“Like-for-like retail employee costs increased by 0.7% following the successful implementation of staffing framework 1.0, where the emphasis was on achieving a consistent and optimal mix of staff to ensure that stores run efficiently,” said the group.

Basic earnings per share (EPS) and basic headline earnings per share (HEPS) also increased to 67.4 cents (+15.6%) and 67.7 cents per share (+16.3%), respectively.

The eight strategic focus areas of the group are the following:

• Integrated Health Ecosystem: Dis-Chem Life to launch in Q1 2025, supported by the evolution of extra rewards to drive policyholder/shopper behaviour change and engagement.

• Property: Current space pipeline of 107,000m² with property team continually growing and converting pipeline towards achieving the 3-year target of 137,000 m².

• Total Income: Continue to incrementally increase total income growth ahead of revenue growth.

• Cost Control: Focus on securing sustained positive operating leverage with staffing framework 2.0, facilitating further reductions in invested payroll cost per retail sqm.

• Working Capital: 10% improvement in inventory days over the next 18 months as it centralises stock management principles.

• Wholesale Market Share Expansion: Continue to transition the independent pharmacy pipeline into TLC franchise stores as it extends wholesale market share gains.

• Digital: Re-platforming and building capability to ensure digital health ownership.

• Leveraging Analytics: With a focus on relevance, commercialise health consumption data to deliver enhanced shopper- and patient-centric value.

As per the Integrated Health Ecosystem focus area, Dischem’s new life insurance product follows the acquisition of OneSpark in June this year, where the retailer bought a 50% stake in the insurer for R155.9 million.

Life insurance can be a heavy source of profits for companies, as most clients never claim.

Capitec has also recently joined the trend after launching Capitec Life, complete with its own underwriting capabilities, earlier this year.

During the six-month period for the group, a net six retail pharmacy stores were opened, which resulted in 274 retail pharmacy stores and 53 retail baby stores as of 31 August 2024.

Retail revenue grew 7.1% to R16.7 billion, with comparable pharmacy store revenue growth at 4.8%.

Wholesale revenue grew by 10.1% to R15.1 billion, with sales to its retail stores still being the biggest contributor.

“Independent pharmacy growth was 30.3%, attributable to both new customers and increased support from the current base, and The Local Choice (TLC) growth was 21.8%, partly due to an increase in TLC franchise stores from 180 to 221.”

Expenses grew by 9.0% from the comparable period, while retail expenses grew by 7.4% as the Group continued to invest in new stores.

Regarding rewards for shareholders, the group upped its interim dividend by 16.1% to 26.98 cents per share.

Outlook

“For the period 1 September to 22 October 2024, Group revenue grew by 5.6% over the prior comparable period,” said the group.

“The group expects that the consumer will remain constrained due to the current economic climate.”

“The continued focus on cost containment and the customer value creation that the integrated health ecosystem provides will position the group for success in the future.”

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