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Shoprite plunges most since 1999 after profit warning

Jan 30 2019 10:07
John Bowker, Bloomberg
Shoppers look at goods in the new South African re

Shoppers look at goods in the new South African retail giant Shoprite outlet in Kano, northern Nigeria. (AMINU ABUBAKAR/AFP/Getty Images)

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Shoprite shares slumped the most since 1999 after Africa’s biggest grocer said first-half earnings dropped as much as 26%, with South African food deflation and IT troubles compounding weakness in the rest of the continent.

Headline earnings per share declined between 16% and 26% to as little as R3.89, the Cape Town-based supermarket operator said in a statement after the market closed on Tuesday.

Shoprite has more than 2 500 stores throughout Africa, yet a considerable majority are in South Africa. That exposes the company to the depressed consumer environment in the economy, which particularly affects its core lower-income customers.

Alongside food-price deflation and rising costs in essentials such as electricity and security, Shoprite struggled with the introduction of a new IT system and some industrial action. There’s little sign of any economic improvement either, though the company insists it can rely on customer support for its brands. In countries elsewhere in Africa, Shoprite’s problems aren’t new.

A massive devaluation in the Angolan currency (and, to a lesser extent, in Zambia and Nigeria) has hurt conversion to the rand and driven up import costs. Meanwhile, rents in many African countries are linked to the US dollar.

The shares fell as much as 17%, the most since July 1999, and traded 12% lower at R157.37 as of 9:12 in Johannesburg. That extended a January decline to 17%, and the stock is down 34% over the past 12 months, compared with a 10% retreat on the FTSE/JSE Africa Food & Drug Retailers Index.

shoprite  |  retail  |  companies
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