Retailer Spar is stabilising after years of financial strain, but shareholders expecting a dividend will have to wait a little longer.
Even with a stronger balance sheet and a 40% reduction in net debt, CEO Angelo Swartz told Business Day the group is considering a share buyback programme to create value for shareholders as an alternative means of return.
He said the board withheld a payout for the second time in the 2025 financial year out of “an abundance of caution”.
The market reacted positively on Monday to the group’s results for the year to end-September, with Spar’s share price rising more than 2%, lifting its market capitalisation to just more than R20bn.
That puts it ahead of fellow turnaround story Pick n Pay at R18.8bn. Both grocers have suffered steep value destruction in recent years.
Spar has shed more than 46% of its market value in five years, including 24% in the past three years and 29% year to date. Pick n Pay has fared even worse, losing more than 49% in five years and more than 60% in the past three years, though its year-to-date decline has slowed to 17% as its recovery gains momentum.
Spar CFO Reeza Isaacs said Spar now sees its shares as fundamentally mispriced. “Currently our share price is substantially undervalued,” he said. “The usual sequence would be to recommence dividend paying, however, in our case buying back shares might be the best way to create value for shareholders before we commit to a dividend policy over the long term.”
Spar’s stance indicates caution after a bruising period marked by high debt, operational setbacks and failed international expansion. Its balance sheet deterioration emanated largely from its debt-funded ventures in Poland and Switzerland, both of which later resulted in big losses.
The Polish operation, acquired for a nominal amount, bled cash and added substantial liabilities that eventually flowed back into the South African business. The Swiss operation also struggled under weak profitability and stiff competition.
Those losses, compounded by foreign-currency debt that grew heavier as the rand weakened, pushed Spar’s net debt to about R11bn at some point and triggered breaches of banking covenants. The group was forced into a major clean-up, writing down billions through impairments linked to discontinued operations.
At home, Spar suffered from a self-inflicted wound when a flawed SAP rollout at its KwaZulu-Natal distribution centre caused supply chain chaos and billions in lost sales. Margins fell, stock availability suffered and the group’s reputation took a knock. With pressure mounting on all fronts, Spar suspended dividends.
The past year, however, has seen the business move aggressively to repair the damage. It began exiting its troubled offshore businesses, disposing of the Polish and Swiss operations as well as the UK’s Appleby Westward Group.
The disposals, combined with tighter working capital management, cut net debt by 40% to R5.4bn. The group has also focused on stabilising the SAP system and improving operational execution in its core Southern African market, where it still generates the bulk of its revenue.
Swartz said the group’s recovery remains vulnerable as the company prepares for its next major SAP rollout, which he identified as the single biggest risk to the retailer’s turnaround strategy. Completing the programme “needs to be our biggest focus” in the year ahead, he said, warning that any missteps could disrupt operations at a crucial stage of the recovery.
According to Swartz, Spar has built “adequate breathing room” after the debt reduction and disposals.
He said the group is targeting growth of at least inflation plus one percentage point next year, with internal inflation for 2025 sitting at 3.4%-3.5%.
MP9 chief investment officer Aheesh Singh said a share buyback may make more sense than reinstating dividends for now, especially since management considers the share undervalued and the balance sheet is not yet strong enough for a steady payout. Choosing buybacks signals confidence in Spar’s medium-term prospects, but warns that sustained, disciplined execution remains essential for the recovery to hold, he said.
“If Spar chooses share repurchases over dividends in the near term, it may be a more sensible choice. Management believes that the share is undervalued. The balance sheet is improving,” he said.
“Given where Spar is in its recovery, I think preserving flexibility matters more than reinstating a payout. The focus should remain on reducing leverage and stabilising earnings before taking on a distribution.”
Revenue for continuing operations for the 52 weeks increased 1.6% to R132.4bn after the second half’s revenue grew 3.5%, a significant improvement on the first. Grocery and liquor volumes strengthened and retailer engagement programmes continued to support loyalty which, at the end of October 2025, was stable at 78.6% from the previous period’s 79.2%, it said.
Gross profit increased 3.3% to R14.2bn, reflecting disciplined price and promotion management, continued supply chain efficiency and more effective category management. HEPS from continuing operations declined to 768.9c from 896c a year ago.
With one final divestment in the UK still to be completed and cautious capital allocation guiding the strategy, Swartz said the retailer enters 2026 more stable, while still navigating a delicate recovery.
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