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SPAR suffering from a hangover

By: Bianke Neethling – Daily Investor

SPAR experienced a massive drop in profit as the retailer is still dealing with the hangover of system issues in South Africa and inflationary pressures.

SPAR released its interim results for the six months through March 2024 today, which revealed mixed results for the food retailer. 

Turnover grew by 7.9% to R77.16 billion, and operating profit rose by a modest 0.2% to R1.57 billion.

However, earnings per share fell by 6.8% to 451.7 cents, and headline earnings per share dropped by 7.6% to 465 cents.

The retailer’s total comprehensive income hell by 96.4% to R41.6 million from R1.15 billion the year prior.

“SPAR’s continuing operations delivered a mixed performance despite the challenging operating environments,” the retailer said in its results. 

“All regions have been dealing with inflationary cost pressures and prolonged higher interest rates placing pressure on consumers and business alike.” 

“This, coupled with the hangover of system issues in South Africa, has impacted the results for the first six months of the year.” 

It explained that while operating grew with a marginal positive improvement, net finance costs negatively impacted profit before tax, which declined by 11.2%. 

The retailer’s biggest market, Southern Africa, reported a total increase in wholesale turnover of 4.8% for all business units. 

The SPAR wholesale grocery business reported sales growth of 4.0% against internally measured wholesale price inflation of 7.0%. 

SPAR’s on-demand shopping offering app, SPAR2U – which is up against competitors like Checkers Sixty60 and Pick n Pay ASAP – was available in 420 sites at the end of March 2024, up from 356 sites in September 2023. 

Online volumes increased by 463% against the prior comparative period.

SPAR’s disappointing results were partly due to its exit from Poland, with SPAR Poland having met the criteria to be classified as a discontinued operation in the period. 

“The board is pleased to report this process is on track with its expected timeline of exiting the market by September 2024,” it said. 

SPAR Poland’s operating loss includes a R721.1 million impairment of assets held for sale in the disposal group. 

Another major weight on SPAR’s performance was its botched implementation of the SAP IT system at its KwaZulu-Natal distribution centre in early 2023.

Following the first regional launch of SAP ERP and warehouse management system at the KZN distribution centre in February 2023, the business experienced several integration issues. 

These issues are estimated to have cost the retailer an estimated R1.4 billion in lost turnover.

Of these issues, the retailer said two remain – the negative gross margin impact caused by buyers having less visibility of pricing and subsidies and inefficiencies of the warehouse management system. 

Regarding the gross margin issue, SPAR said further developments and designs are being implemented to improve the pricing screens, which will be produced in September 2024. 

“The decision has also been made to implement a more cost-effective warehouse management system that is better suited for our business,” it said.

In light of these issues and the company’s financial performance, SPAR’s board decided not to declare an interim dividend.

“The board will revisit this decision based on future macroeconomic and operational conditions,” it said.

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