Shoprite profits hit hard by increasing inflation

Zweli Mokgata

Zweli Mokgata

Shoprite Holdings saw a solid rise in turnover for the second half of 2007, but increasing interest rates and inflation could take a bite out of profits when audited results are revealed next month.

The retail group's income grew by 21,8percent to R23,3billion for six months up to December 2007, according to a trading update released yesterday.

However, Zimbini Vazi, Macquirie Securities retail analyst, said: "The turnover looks good, but it doesn't give much of an indication of volumes sold. It could just be the result of rising inflation."

Without the organic expansion (25 new stores last year) the growth was slightly less at only 16,5percent.

JSE rules say that a company is required to publish its trading announcement as soon as it is certain that there is a 20percent difference in financial results from the previous corresponding period.

Since Shoprite's turnover was the only amount mentioned in its update, this could mean that earnings per share and profit could be lower than 20percent, said Vazi.

The entire retail sector has experienced the lowest growth in four years, according to statistics, meaning volumes at Shoprite could have been lower than expected.

Business outside South Africa grew by 32,5percent and 20,2percent when new business is excluded.

The furniture division's sales grew by 3,2percent for the period.

"These were largely affected by the National Credit Act, higher interest rates and a general downturn in purchases of durable and semi-durable goods," the group said.

"The figures should be interpreted against the background of the industrial action affecting the majority of Shoprite stores during the corresponding period in 2006," Shoprite added.

The preliminary findings came ahead of Shoprite's audited interim results for the six months ended December 2007 which will be released next month.