Dark clouds gather over Shoprite Checkers

Shoprite’s latest results revealed that the retailer is facing significant challenges, with its share price plummeting 6% before rebounding.

On Tuesday, 4 March 2025, Shoprite released its unaudited results for the 26 weeks ending 29 December 2024.

The Shoprite Group, which includes Shoprite, Checkers, and Usave, increased revenue by 9.4% to R130.8 billion.

Merchandise sales increased by 9.6% to R128.6 billion, while sales from its South African supermarkets increased by 10.4% to R107.7 billion.

Diluted headline earnings per share increased by 9.9% to 659.9 cents from the restated 600.3 cents in the prior period.

The Shoprite Group opened a net total of 283 stores during the past year and increased its staff complement by 2,989 employees in six months.

Shoprite returned R1.5 billion to shareholders through dividends, over and above the R997 million spent to buy back shares during the six months.

Shoprite CEO Pieter Engelbrecht said the sales growth was the result of detailed data-led planning and execution.

“In the context of selling price inflation of 1.9%, this quantum of additional spending, equating to a 10.4% increase in sales, was underpinned by strong volume growth,” he said.

He added that one of their strengths is that they are a multi-brand, platform business operating at scale.

“Our core supermarket operations, Checkers, Shoprite, and Usave, are corporate-owned and operated,” he said.

Engelbrecht said their technology team completed an installation of their new point-of-sale system rollout across 2,450 stores.

The ShopriteX digital team, together with Checkers store operations and Pingo Delivery, delivered millions of orders over six months.

The company also re-platformed its Checkers Sixty60 on-demand grocery delivery tech stack to upgrade functionality and incorporate same-day general merchandise delivery.

“We expect the addition of more than 10,000 general merchandise products to our re-platformed Checkers Sixty60 app,” Engelbrecht added.

The Shoprite CEO said most of the company’s growth will continue to be achieved by its three distinct South African corporate-owned and managed supermarket businesses.

Shoprite Checkers’ slowing growth

On the surface, Shoprite’s latest results looked excellent. However, the share price plummeted by 6% after its release, revealing that it is not all good.

Although the share price recovered from the sudden drop, the question remains as to why investors reacted so negatively to the results.

One of the reasons is that the retailer’s growth was significantly lower than many shareholders expected.

When accounting for its discontinued furniture business operations, the group’s revenue increased by 9.4% from the previous period.

However, without excluding the revenue from discontinued operations, Shoprite’s absolute revenue increased by only 5.7%.

Compared to the past 3 years’ results, the current interim period revenue growth is underwhelming.

Shoprite’s lofty valuation

When Shoprite’s relative value is considered, the share price drop after the results were released should not surprise investors.

Shoprite trades at significantly higher price multiples than its industry competitors, Spar and Pick n Pay.

Shoprite trades at a price-to-sales (P/S) multiple almost four times greater than Spar and Pick n Pay.

It means an investor pays almost four times more per unit of Shoprite revenue than it does for either Spar or Pick n Pay.

The reason for the valuation difference can largely be explained by the difference in profitability between these competitor companies.

In its latest annual report, Shoprite generated a net profit margin of 2.60%, while Spar only reported a net profit margin of 0.23%. Pick n Pay reported a net loss margin of -2.84%.

Another aspect that explains the difference in relative valuation between these companies is the difference in revenue growth rates.

Since 2020, Shoprite has experienced much more substantial revenue growth than Spar or Pick n Pay.

Therefore, Shoprite’s share price is much higher in relation to its revenue, which translates into greater profitability and is, therefore, worth more.

Furthermore, its revenue is valued higher due to the greater anticipated revenue growth rate. Simply put, investors believe Shoprite will outperform the rest.

Shoprite’s latest revenue result of only a 5.7% increase in absolute revenue represents an underperformance relative to its historical growth.

Compared to Pick n Pay’s interim result for the period ending August 2024, Shoprite did not achieve much better revenue growth.