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Shoprite feels brunt of poor economy

Cape Town - Mining job cuts, rising electricity costs, labour instability and a lack of job creation have caused a first-quarter slowdown in Shoprite [JSE:SHP] sales growth.

Africa’s biggest retailer said its turnover increased by 6.7%, considerably lower than its annual growth figures of 11.2% for the year ended June 2015.

It said this was a “reflection of slower growth in the economy”.

Shoprite shares dropped 3.88% to R152.68 at 11:30 on Monday, with its previous closing price of R158.85.

South Africa’s economic growth has showed signs of weakness, with gross domestic product contracting by 1.3% in the second quarter of 2015, while unemployment figures stood at 25% in the same period.

Shoprite’s primary business, its South African stores, grew sales by 4.9% during a period when internal inflation reduced from 6% in the corresponding quarter to 3.4%.

“The core customer base of its flagship Shoprite chain in particular remained under pressure from mining job cuts, rising electricity costs, labour instability and lack of job creation,” the group said in a statement on Monday.

The Group's non-South African stores achieved turnover growth of 12.8% (18.6% in constant currencies) despite the impact of lower commodity prices and currency devaluations of the three dominant countries in which the group trades on the continent, it explained.

In August, Shoprite said it had managed to increase sales by 11.2% to R113.7bn thanks to 170 new stores and taking market share in food sales from its competitors.

However, on Monday it said first quarter performance - the three months to end-September - was influenced by fewer store openings compared with the corresponding period.

“There will however, be substantially more store openings in the remaining three quarters of the financial year than in the same period a year prior,” it said. “The group remains optimistic in the medium term.”

Festive season sales are difficult to predict, but a stronger double digit sales growth is already evident for the month of October, it said.

Last week, the National Credit Regulator (NCR) said it was investigating Shoprite for reckless lending practices. Two of the company’s units, Shoprite Investments and Shoprite Insurance, sold job-loss insurance and occupational disability cover to pensioners and consumers who are receiving government social grants for the elderly, the regulator told Bloomberg.

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