A mixed picture emerged when three of the largest JSE-listed retailers, Shoprite, Woolworths and Massmart, announced their results in a moribund economy recently. Shoprite surprised on the upside, Woolies disappointed and Massmart shocked.
I chatted to seasoned retail analyst Syd Vianello, who had words for all of them.
On a comparable 52 weeks of trading, Shoprite increased turnover 10.6% and diluted headline earnings per share rose 16.1%. Like-for-like turnover growth, which excludes the effect of new floor space, rose 5.8% and internal food inflation was measured at 5.9%. Overall, it was an excellent result much appreciated by the market.
Approving of new CEO Pieter Engelbrecht and his motivated team, Vianello says the Shoprite brand continues to resonate "very strongly" with lower prices. As it rolls out far more stores than any of its competitors in areas where customers live, such as townships, it is picking up more of that business than its rivals. "And store cannibalisation continues to be nonexistent. For the rest of Africa, management still sees huge opportunity," Vianello says.
Like-for-like store sales of Woolies clothing and general merchandise fell 0.9% for its 52 weeks against internal inflation of 6.6%, so, in real terms, sales went backwards noticeably.
Its operating profit margin fell from 16.8%, to 15.6%. On the food front, like-for-like sales grew 4.6%, but internal inflation came to an average of 8.4%. Australia’s David Jones had a poor year and Country Road earnings were virtually static. Even a plunging effective tax rate, from 27.8%, to 19%, could not stop group headline earnings per share from declining 7.6%.
Vianello is not optimistic on Woolies. "Woolies seems to have lost its way, particularly in SA. I get the feeling that since Ian Moir effectively moved back to Australia to sort out David Jones and left the local management team on its own, the business has started to flounder."
He describes the Woolies food range as "tired", with prices moving way out of line.
"Checkers could make things tough for them as it aims to capture the more affluent shopper. Shoprite management openly admits it missed the Woolworths opportunity many years back and now wants to take them on."
This would be an ambitious and dangerous move by Checkers and one Pick n Pay painfully experienced about a decade ago, when it tried and failed with this same aspiration.
The key to success when it comes to convenience food is being able to secure supply lines of high-quality foods from sustainable, reputable suppliers, and Woolies already masters much of the available capacity in this space.
Going down under, Vianello says the Australian presence has not delivered. "David Jones revenue remained flat. The move into private label has been a big flop so far and I worry that this may destroy its upmarket image. And, in any event, department stores are a dying breed. Also, the jury is still out on their food business in this region," he says.
Vianello does see a positive for Woolies. "Its shift into more cosmetic lines could leverage off the demise of Stuttafords and bring in new customers who would then cross-shop."
Massmart total sales for the interim period to end-June rose 0.5%, like-for-like sales declined 1.6% with internal inflation at 3.2% and operating profit before interest fell 6.6%. Headline earnings per share were helped by lower forex losses, resulting in a marginal improvement of 2.5%.
Vianello is highly critical of this dismal performance.
"Do you really want to invest in a business where one division had R15bn in turnover and only posted a profit of just a few million? It’s not worth opening the doors. And another division, being general merchandiser Game, made a margin of 1%? Also, not worth it. I question the future of Game. Perhaps a total reconfiguration to a smaller store base comprising smaller stores is required."
These are harsh words and a wake-up call for an even tougher economic outlook.
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