Spar Group Ltd. shares fell the most since its 2004 listing after the South African food and liquor retailer lost market share in its domestic market and cut dividend.
(Bloomberg) — Spar Group Ltd. shares fell the most since its 2004 listing after the South African food and liquor retailer lost market share in its domestic market and cut dividend.
In South Africa, where Spar gets the bulk of its sales, full-year operating profit rose 1.1%, according to a statement Wednesday. Shoprite Holdings Ltd., the country’s largest grocer, reported a 12% gain when it reported earnings in September.
“The South African earnings were very, very weak and the company doesn’t want to increase debt levels any further,” said Alec Abraham, an analyst at Sasfin Securities, after the Durban-based company more than halved its full-year dividend. “It doesn’t make for a decent shareholder return.”
Spar’s neighborhood stores were once seen as a winning formula as shoppers increasingly wanted convenience when buying groceries. But as competitors started to bulk up their on-demand online-shopping options, Spar’s advantage shriveled. That’s been exacerbated by challenges such as falling consumer spending and a high rate of unemployment.
The stock sank 14% to 141.81 rand as of 12:42 pm in Johannesburg. Pick n Pay Stores Ltd., which posted the next biggest decline on the FTSE/JSE Personal Care, Drug and Grocery Stores Index, fell 1.8%.
The company’s own online option, SPAR2U, opened in 87 stores during the second half of the financial year. Shoprite’s one-hour delivery app is offered from more than 300 stores, while Woolworths Holdings Ltd. and Pick n Pay Stores Ltd. have both reported rapid online sales growth.
With debt-to-equity at about 100%, Spar was “prudent” in not raising its debt further just to pay a larger dividend, Abraham said. Still, “obviously shareholders weren’t appreciative of it.”
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