Spar strongly outperformed Pick n Pay, even with SAP issues
One has to be careful when comparing retailer results, particularly as the reporting cycles can differ so significantly. South Africa is a volatile environment and load shedding is a major factor, so small differences in performance can easily be explained by the numbers being for different periods.
Large differences are harder to explain away like that, so Spar’s core grocery and liquor
turnover growth in South Africa of 6.1% for the 26 weeks to 16 February only makes the Pick n Pay numbers look even worse. Spar has had its own challenges, having given itself the near-term kiss of death with a SAP implementation at the KZN distribution centre. Have you ever seen an SAP implementation at a retailer go smoothly? Me neither. And yet there is considerable outperformance compared with Pick n Pay.
The pain in the building materials sector is still clear to see, as Build it only grew turnover by 0.5%. Based on recent numbers from Italtile and Cashbuild and the associated outlook, the situation isn’t improving in that space any time soon. At least we make up for the stress on weekends, as TOPS at SPAR increased sales by 12.7%.
The weak rand gave the numbers from the offshore businesses a significant boost. Even in Switzerland, where turnover fell 5.7% in CHF, our battered currency transformed that into 9.2% growth in ZAR.
Like Pick n Pay, Spar has work to do on the balance sheet and it has a headache in the form of the business in Poland. Unlike Pick n Pay, Spar’s core business is functioning fairly well, with obvious upside potential as the SAP issues are ironed out, which means drastic action probably isn’t needed.
Bidcorp: a different story
To end on a more positive note, we can consider Bidcorp as a global food services giant that is available to you right here on the JSE. Very little of the group revenue and profitability is achieved in South Africa, so this is one of the best rand hedges available on the local market.
In the six months to December, Bidcorp grew revenue 24% and trading profit 20.8%. Those are strong numbers, but you can see margin pressure on trading profit. The source is the UK business, where revenue increased 21.2% and trading profit fell 15%.
What can we learn from this? The first thing is that consumer problems aren’t exclusive to South Africa when interest rates have moved higher across the globe. The second is that even when things aren’t great, they still aren’t bad at Bidcorp. The share price may trade at a premium valuation, but the track record explains why.