Beauty and pharmacy giants Clicks and Dis-Chem are leading a recovery in SA’s retail sector when measured by share price as the top six companies compete fiercely for customer loyalty in a tough economy.
Dis-Chem heads the pack with a gain of 22% so far this year, while Clicks is up 18%. The gains are attributable to their expansion and loyalty reward programme strategies, as well as an improved outlook on inflation and interest rates.
Clicks has maintained a strong market position, boosted by its expanded offerings in health, beauty and household products.
The group added more than 50 stores over the past year and has set itself the ambitious goal of reaching 1,200 outlets in the medium term. It’s also planning further investment in technology and private-label products.
Dis-Chem, which listed on the JSE in 2016, has expanded into life insurance and financial services.
Still, Clicks outpaces Dis-Chem it in terms of earnings growth and margins, making it the most highly rated share in SA’s retail sector.
Investment analyst Chris Gilmour said while earnings growth at both groups isn’t spectacular, investors are attracted to the companies’ steady and predictable performances.
“Clicks is the most highly rated share in the retail sector and Dis-Chem is not far behind. Looking at the Stats SA figures for pharmacies for the past year, the sector has been in the doldrums until recently,” he said.
“There has been a gradual turnaround in consumer spending in this sector in the past few months and that is reflected in improved performance at both Dis-Chem and Clicks. Actual earnings growth at both is nothing to get too excited about. But it’s very predictable and consistent growth, and investors are prepared to pay a premium for that.”
While Clicks and Dis-Chem have surged ahead, other retail giants in the country’s top six have posted moderate gains.
So far this year Spar is up 8.6% while Pick n Pay has risen almost 31%, though off an extremely low base.
In recovery mode
Spar’s recent leadership change, with Angelo Swartz taking over as CEO in October 2023, is seen as a crucial turning point. The company has worked hard to resolve its debt issues and fix problems with its Polish operation. Gilmour believes Spar is well on its way to recovery, noting that the worst is behind it.
Pick n Pay, however, still has a long way to go. The company, which recently lost almost half of its market value, has shown signs of recovery under the leadership of reappointed CEO Sean Summers.
His turnaround plan includes a successful R4bn rights issue and a separate listing for Boxer, a discounter chain Pick n Pay acquired in 2007, by the end of the year. Despite this, investor concerns persist, particularly given the group’s ongoing challenges with trading profits.
“The rights offer proceeds have been applied to debt reduction and Boxer’s private placement takes place soon. It’s looking good for Pick n Pay but the path to full recovery will be long and arduous,” Gilmour said.
Shoprite remains a dominant force in the sector, with solid growth of 12.7%. “Shoprite is by far the largest and best-run retailer in SA. It just keeps on pumping and rarely puts a foot wrong,” Gilmour said.
Woolworths, which is more focused on the premium sector, faces a more fraught outlook. The company’s food business remains strong, but its clothing division continues to be unpredictable thanks to the ill-fated acquisition of Australian luxury retailer David Jones.
“They need a new growth vector to take over from the ill-conceived and highly destructive David Jones acquisition. Unless and until Woolies can make a meaningful new acquisition, I believe it is destined to carry on in the same old volatile vein,” Gilmour said.
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