Shoprite shares lose almost 6%

Shoprite's share price closed 5.93% down at R188.

Negative sentiment

Negative sentiment around Shoprite dragged other retailers lower‚ with the JSE's Food and Drug Retailers Index and the General Retailers Index down 4.9% and 3.6% respectively.

"The general feeling in the market after Shoprite's trading update is that other retail counters will not be able to sustain earnings at current valuations.

"Investors expected a 15% increase in turnover compared with 13.8% that the company achieved.

"Price-to-earnings ratios of these companies remain too high after being pushed up largely by offshore investors‚" Hennie Fourie‚ stockbroker at PSG Konsult said.

Monday's share price fall was Shoprite's worst one-day performance since 27 November 2006 when the stock fell 6.4%.

For the six months ending December 2012‚ the retail giant said turnover rose by about 13.8% to R46.7bn. Growth on a like-for-like basis was 6.9%.

In October last year‚ Shoprite CEO Whitey Basson said that consumers were under increasing pressure‚ making it difficult to predict spending patterns going into the 2012 festive season.

Adverse conditions

Despite record low interest rates and above inflation wage increases‚ market conditions have remained adverse‚ as retailers battle it out with each other and consumers remain challenged due to rising debt‚ increased living expenses and heightened unemployment‚ which continue to erode disposable income.

Last week‚ a sales update from Massmart Holdings‚ whose portfolio includes the Game‚ Dion Wired and Builders Warehouse chains‚ also failed to impress analysts.

The company said sales for the 26 weeks to December 23 increased to R36.1bn‚ representing growth of 14.6% over the prior period. Comparable store sales rose by 7.3%.

Shoprite's South African supermarket operation grew sales by 11.5% and by 6.2% on a like-for-like basis‚ the group said on Monday. For the month of December 2012 sales were 10.8% higher than for the corresponding period.

Internal food inflation was on average 4.3% compared to the estimated official figure of 5.9%.

Jeanine Womersley‚ an investment analyst at Renaissance Capital‚ said Shoprite's trading update was "slightly disappointing".

Non-SA operations positive

"On the positive side‚ we're seeing very good growth coming through from the group's non-SA operations‚ but this was more than offset by a weaker result from the group's SA supermarkets division‚ which grew sales by 11.5%‚ implying a slowdown in second quarter 2013 trade to about 11% from 12.2% in first quarter 2013. December sales growth in particular slowed quite sharply from 15.5% last year‚ to 10.8% this year‚" Womersley said.

Avior Research retail analyst Michael McLeod said: "We've seen the sales slowdown since their operational update for the first quarter - just highlighting a rather disappointing festive season with that 10.8% sales growth in December.

"Obviously it's disappointing‚ but we don't see that this is a fundamental change to our outlook for Shoprite."

The group's non-RSA supermarkets saw sales growth of 28.2% and‚ on a like-for-like basis‚ 13.4%. At constant currencies a rand turnover growth of 23.5% was achieved.

"The Cape Town-based company operates in 17 African countries outside SA.

According to Womersley‚ Shoprite's furniture division also posted a "particularly" weak result‚ with sales growth of 4.8% "which would suggest that growth in the second quarter in fact turned negative versus 11.9% growth in the first quarter."