Spar Faces Profit Decline and Operational Challenges: Scraps Interim Dividend

Spar, the JSE-listed retailer, has decided to cancel its interim dividend due to a significant drop in profit. The company is currently confronted with a number of challenges, including rising costs, high interest rates, and issues with a new IT system. Spar’s operating profit fell by nearly 18% in the six months leading up to March 2023, amounting to approximately R1.5 billion. Furthermore, its diluted headline earnings per share fell by more than 30%.

The implementation of new enterprise planning software, known as SAP, at Spar’s KwaZulu-Natal distribution centre was one of the major issues affecting Spar’s performance. This resulted in a decrease in turnover for the company. Furthermore, rising interest rates had a negative impact on Spar’s debt-related finance costs. Costs have also risen in the company’s international operations, which include Poland, Switzerland, the United Kingdom, and Ireland.

Spar deemed it “prudent” not to declare a dividend in light of these challenges. On the JSE, the company’s market value is estimated to be around R20 billion. Spar previously communicated the decline in profit in a trading update, causing its shares to drop by more than 20% in two days. Turnover increased by nearly 6% in the Spar Southern Africa division. However, a constrained consumer environment, exacerbated by load shedding, hampered sales.

Spar’s Tops liquor stores saw revenue fall from the previous year, when sales were brisk due to the relaxation of COVID-related alcohol bans. Build It, the company’s construction division, underperformed as well. Furthermore, sales growth in the Spar grocery business was only 7.9%, despite price increases of 10.8%, indicating a drop in volumes.

However, sales have been on an upward trend since March. Spar management recognises the difficult conditions but is taking proactive measures to mitigate their impact. The company intends to attract customers through value-oriented house brand offerings 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.

Spar’s Swiss operation saw its turnover fall by 4.3% in Swiss francs but increase by 7% in rand terms. The company stated that declining volumes are putting pressure on food retailers throughout Switzerland. Spar’s business in Ireland and the United Kingdom, on the other hand, increased by almost 9% in euros (15% in rands). Furthermore, its Polish operation increased its turnover by 4.9% in local currency and 9.3% in rands.

Spar anticipates that the upcoming summer season in Europe will benefit retail trading and growth in the hospitality sector. Brett Botten, the company’s former CEO, stepped down in January, and a search for a new group CEO is currently underway. The board recognises the uncertainty created during this time period and intends to address it as soon as possible.

Despite a 3% increase in early trading on Wednesday, Spar shares have fallen by more than 20% in the last year.

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