The good news

On Tuesday, 26 March 2024, the SPAR Group (South Africa’s second biggest supermarket retailer in terms of income) announced an 8.8% increase in turnover for the 24 weeks ended 15 March 2024.

Although, the increase is lower than the 9.3% growth the group reported for the 20 weeks to February.

In a voluntary trading update on Tuesday, the group mentioned that sales in the South African market have experienced strong  growth, substantiated by the following figures:

• Retail sales increased by 7.1%
• TOPS at SPAR (the liquor division) experienced sales growth of 12.8%
• The Build it division achieved a growth in sales of 1.1%
• The sales of the pharmacy department grew 17.7%

In addition, SPAR lowered its substantial debt mountain of R12.8 billion at the end of March 2023 to R11.5 billion as of the end of February 2024.

Furthermore:

• The group confirmed that it will optimise the new SAP software system and improve loyalty, adding that these steps will improve sale margins in the second half of its 2024 financial year.
• The trading update also responded to the turnover growth, which was not at expected levels, mentioning: ‘The South African business has responded by improving operational efficiency and focusing on cost-saving opportunities.’
• The trading update stated further that in response to high interest rates, muted GDP growth forecasts and high employment, SPAR is ‘focusing on delivering everyday value, low prices, and convenience to our shoppers,’ as mentioned by Angelo Swartz (SPAR Group CEO).
• Swartz also confirmed that ‘South Africa remains the heart of SPAR’s business and is a key focus area.
• The group is in discussions to restructure its obligations.
• The expectation is that the company’s recent withdrawal from Poland will release approximately R500 million of earnings per year, enabling the group to focus on South Africa, which provides more than 60% of its revenue.
• SPAR is also interested in expanding in baby and pet stores in South Africa.

South Africa was the first country outside of Europe to become part of the SPAR organisation when SPAR South Africa was established in 1963. According to SPAR South Africa, it ‘operates four retail formats,’ namely: SPAR Supermarkets, SPAR Express (operated in partnership with Shell, providing forecourt convenience shopping at filling stations), KWIKSPAR (focusing on convenience shopping), and SUPERSPAR (one-stop superstores).

Furthermore, SPAR South Africa Group also includes the following brands: TOPS at Spar (liquor shops), SaveMor (described by SPAR as ‘excellent value for money for rural and township markets’), Build it (standalone building material stores), and Pharmacy at SPAR (in-store and standalone family pharmacies).

The bad news

In November 2023, the company stalled its dividend and announced a 47% decline in full-year operating profit.

‘The decline in earnings has seen Spar’s shares slump 21% this year, compared with a 15% gain on the six-member grocery store index,’ as reported by Businesstech on 15 March 2024.

The group accepts it will continue to encounter headwinds in all the markets where it currently operates.

Regarding these markets, the company reported as follows:

South Africa

As in other countries where the group operates, SPAR is also feeling the pressure of demanding economic conditions in South Africa, experiencing falling volumes.

The company has recently been negatively affected by the problematic launch of a new SAP software system at its distribution centre in KwaZulu-Natal, diminishing its sales. However, in the trading update on 27 March 2024, the company was confident about the system, assuring that it is now ‘functioning as designed,’ although not yet perfect.

Switzerland

Regarding its performance in Switzerland, the group suffered a decline in turnover of 4.7% in Swiss franc terms. Although, in terms of the South African rand, the turnover increased by 8.8%.

The main reason for the fall in turnover is the shift in consumer behaviour, preferring cheaper products in local supermarkets and across the country’s borders. On the positive side, SPAR convenience stores have prospered from unseasonably warm weather over the past four weeks.

Ireland

In Ireland, SPAR operates through the BWG Group – the country’s second largest wholesaler in terms of sales. In euro terms, the increase was 6.6%, almost 17% in ZAR terms. However, there were challenges such as high interest rates, a 12.4 increase to the minimum wage (effective from 1 January 2024), and inflation.

The United Kingdom (UK)

The group cautioned that economic growth stay uncertain, while trading conditions have been challenging, caused by the seasonal nature of the business, which is situated in an area influenced by holidaymakers.

Poland

Concerning Poland, SPAR’s turnover decreased by 4% in terms of the local currency (the zloty), but in rand terms an increase of 13% was reported. The turnover was negatively affected by the loss of a small number of retailers and the company’s announcement to withdraw from the Polish market.

SPAR shares

As of close of trade on the JSE on 27 March 2024, SPAR shares traded at R88.40 per share.

The share price of R88.40 is R29.50 lower than the share price at the beginning of 2024, which was R117.90 This constitutes a decrease of 33.37%. A year ago, the share price was R141.36, which is R52.96 more than the current price.

Currently, the company’s authorised shares are 250,000 000, while the total of the issued shares is 192 602 355.

As of 27 March 2024, SPAR’s market capitalisation (market cap) amounts to R16 756 404 885. (Market cap is calculated by multiplying the number of shares by the outstanding current share price.)