Shoprite Holdings Ltd\u2019s lower-income South African customers are struggling and it\u2019s weighing on the profitability of Africa\u2019s biggest supermarket chain.<\/p>\n
Earnings excluding one-time items fell by 3.8% to R9.69 per share in the year through June, missing the R10.82 per share analyst estimate compiled by Bloomberg.<\/p>\n
The Cape Town-based company also cut the full-year dividend to R4.84 a share, it said in a statement Tuesday.<\/p>\n
\u201cConsumers are under a tremendous amount of pressure and conditions for Shoprite\u2019s core customers at the lower end are particularly tough,\u201d Alec Abraham, an analyst at Sasfin Securities Ltd, said by phone before the results were published.<\/p>\n
The shares slumped 5.3% to R200.57 as of 9:19 a.m. in Johannesburg, a seven-month low, giving the company a market value of R118 billion ($8.3 billion).<\/p>\n
Lower Prices<\/strong><\/p>\n The falling profit reflects a South African economy that\u2019s been impacted by higher fuel prices and value-added tax, while unemployment levels rose to more than 27% in the second quarter – particularly hurting those in lower-income parts of the country. The owner of chains including Checkers and U-Save cut prices of more than 13,000 products to ease the burden on customers, though that came at the expense of profit margin.<\/p>\n \u201cWe made a deliberate decision in the face of many headwinds to maintain investment in our people and in new stores for the sustainable long-term health of the business, the benefits of which will be realized in the future,\u201d chief executive officer Pieter Engelbrecht said in the statement.<\/p>\n Outside South Africa, Shoprite sales slumped 7% in its 14 other countries, hurt by slow economic recoveries, unfavorable currency moves and foreign-exchange shortages. Angola particularly weighed, following two years of breakneck revenue growth. However, the company is set to expand into Kenya and remains committed to the African continent, the retailer said.<\/p>\n
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