Spar, the retailer with a market capitalisation of R16.8 billion, posted an 8.8% increase in group turnover for the 24 weeks ended 15 March 2024 prior to Spar entering its financial closed period in respect of the six months ending 31 March 2024.
Group turnover was negatively impacted by fluctuations in exchange rates since the group reported turnover for the 20 weeks ended February 16.
The macroeconomic environment in its stores operated in South Africa, Ireland, the UK, Switzerland and Poland faced several headwinds, the retailer said.
The operating environment in South Africa, which accounts for more than 60% of Spar’s revenue, continued to be challenging. While inflation is back within the South African Reserve Bank's target range, a combination of 14-year high interest rates, muted gross domestic product growth forecasts and a high unemployment rate continue to place consumers under immense pressure, the group said.
Spar Southern Africa's total wholesale sales growth of 5.7% was impacted by a weaker-than-expected grocery business performance.
It saw a combined core grocery and liquor turnover growth of 6.0%, against internally measured price inflation of 7.2%; Spar grocery wholesale business increased sales by 5.0%; and Tops at Spar liquor sales increased by 12.8%.
BWG Group, trading in Ireland and South West England, continued to trade strongly with turnover increasing by 6.6% in euro terms. Spar Switzerland reported a decline in turnover of 4.7% in Swiss francs.
Spar Poland’s turnover decreased by 4.2% in Polish złoty.The group said it was making significant progress on its Polish business disposal with advisers talking to interested parties.
Spar advisers were also reviewing its capital structure and propose the optimum structure of group debt, taking into consideration the outcome of the Polish disposal process.
Group net debt at the end of February 2024 amounted to R11.5bn, against R12.8bn as at March 31, 2023. It said it continues to manage the covenant performance with the support of all financiers and plans to operate without seeking additional funds from its shareholders.
Spar said while wholesale sales performance had been weaker than expected, which negatively impacted margin recovery. It was encouraging to note that Spar retail sales for February increased by 10.9% and 9.5% on a like-for-like basis.
For the five months ended February 29 retail sales increased by 7.1% with like-for-like sales increasing by 5.8%.
The current Ebit margin performance remained under pressure predominantly due to the business challenges that have continued in KwaZulu-Natal, which have impacted profitability more than expected during the period.
Spar gave an update on its new IT system, that has taken a long time to shape up and left it out of pocket.
It said the new SAP ERP and warehouse management system went live at the Spar distribution centre in KZN in February 2023.
Order fulfilments rates were in line with what they were before the launch of the new system, however, retailer loyalty rates have been impacted. This region was focused on improving loyalty through additional promotional support, amongst other targeted programmes, it said.
“The system is stable and functioning as designed, however, is not yet at the efficiency levels anticipated. The main areas impacted are the region's ability to manage gross margin and delivery cycles, which has, as a consequence, resulted in lower-than-expected gross profits, increased labour costs and a higher investment in working capital in this region,” it added.
The financial results for the six months ending 31 March 2024 will be published on on or about Wednesday, June 12.
BUSINESS REPORT