Global Courant
Spar, the retailer listed on the JSE, has decided to withdraw its interim dividend due to a sharp drop in profit. The company is currently facing a number of challenges, including rising costs, high interest rates and problems with a new IT system. Spar’s operating profit fell by nearly 18% to approximately R1.5 billion in the six months leading up to March 2023. In addition, diluted total earnings per share declined by more than 30%.
The implementation of new business planning software, known as SAP, at Spar’s distribution center in KwaZulu-Natal was one of the main issues impacting Spar’s performance. This resulted in a drop in sales for the company. In addition, rising interest rates negatively impacted Spar’s debt-related financing costs. Costs have also increased in the company’s international operations, including Poland, Switzerland, the United Kingdom and Ireland.
Given these challenges, Spar deemed it “cautious” not to pay a dividend. On the JSE, the market value of the company is estimated at around R20 billion. Spar previously communicated the profit drop in a trading update, as a result of which the share fell by more than 20% in two days. Turnover in the Spar Southern Africa division increased by almost 6%. However, a constrained consumer environment, exacerbated by tax breakdowns, hampered sales.
Spar’s Tops liquor stores saw sales drop from the previous year, when sales got off to a good start due to the relaxation of COVID-related alcohol bans. Build It, the company’s construction division, also underperformed. In addition, sales growth in the Spar grocery business was only 7.9%, despite price increases of 10.8%, indicating a decline in volumes.
Since March, however, sales have been on an upward trend. The Spar management recognizes the difficult circumstances, but is taking proactive measures to limit the impact. The company plans to attract customers through value-focused private brands and is launching a new private label product strategy. Resolving SAP implementation issues in KwaZulu-Natal is a top priority for businesses and retailers alike.
The Swiss branch of Spar saw turnover fall by 4.3% in Swiss francs, but rise by 7% in rand. The company stated that declining volumes are putting pressure on food retailers across Switzerland. Spar’s turnover in Ireland and the United Kingdom, on the other hand, grew by almost 9% in euros (15% in rands). In addition, the Polish branch increased its sales by 4.9% in local currency and 9.3% in rands.
Spar expects the coming summer season in Europe to benefit retail and growth in the hospitality industry. Brett Botten, the company’s former CEO, stepped down in January and the group’s new CEO is currently being sought. The Board recognizes the uncertainty that has arisen during this period and intends to address it as soon as possible.
Despite a 3% increase in early trading on Wednesday, Spar shares fell more than 20% over the past year.
Main image: News24
Spar is facing profit decline and operational challenges: scrap
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