Dis-Chem takes a big knock

JSE is looking into last Thursday’s trades ahead of its results release

The drop in Dis-Chem’s share price on Thursday – just before its financial results were released – was probably due to the market realising that it would miss earnings expectations, the retailer’s management team said on Friday.

The drop in Dis-Chem’s share price on Thursday – just before its financial results were released – was probably due to the market realising that it would miss earnings expectations, the retailer’s management team said on Friday.

Analysts expressed concern that Dis-Chem stock fell as much as 5.6% on Thursday, the day before the group released annual results that fell short of consensus forecasts.

Dis-Chem chief financial officer Rui Morais said investors had expected a trading statement saying earnings would jump by more than 20%, although they had not factored in the group’s investments in its wholesale business, which dented profits.

“It’s not our place to comment [on the share decline], but from a governance perspective, we handled the results as we should have,” he said. “There was no need to release a trading statement, but I suspect that there was an expectation of one based on consensus, and as of [Thursday] it wasn’t out, so there would have been trade on the basis that we weren’t going to get to the consensus number,” Morais said.

The JSE, meanwhile, is looking into Thursday’s trades.

“The trading activity ahead of the announcement will be reviewed by the market regulation division, and if we conclude that any trades warrant further investigation we will refer those trades to the Financial Sector Conduct Authority for their consideration,” said Shaun Davies, the JSE’s director of market regulation.

Dis-Chem’s share price fell a further 13.9% to R30.40 on Friday after it said that net income for the year ended February had risen 6.6% to R698m. Morais said the market had probably not factored in the costs associated with scaling Dis-Chem’s wholesale unit, which had recorded an operating loss of R169m.

But the retail business had performed well, said Morais. Turnover in that division had risen 15%, and like-for-like turnover increased 6.6%. Margins had also lifted.

Dis-Chem added 21 stores in the year, which increased its total base to 129 outlets at the end of February.

CEO Ivan Saltzman said the group had committed to adding more than 20 new stores in the financial year ending February 2019 “and we’re in negotiations for a few more”.

Dis-Chem has three stores in Namibia and would open a fourth in that country “in a few weeks”.

The group would also open a store in Botswana in coming months, Saltzman said.

However, he said the group’s expansion beyond SA’s borders would be slow.

“We want to bed down where we are.”

In SA, Dis-Chem expected to grow its market share from about 22% to 25% over time as independent operators lost ground.

Consolidation among independent players would present further acquisition opportunities, said Morais.

After February, Dis-Chem’s CJ Distribution business agreed to buy a regional wholesaler in Cape Town.

“There are a few more [potential deals] we’re looking at,” Morais said.