Shoprite Holdings Earnings Call Highlights Robust Momentum

Shoprite Holdings ((SRGHY)) has held its Q2 earnings call. Read on for the main highlights of the call.

Shoprite Holdings’ latest earnings call painted a broadly upbeat picture, with solid sales growth, resilient margins and strong cash generation offsetting regional pressures and accounting‑driven cost increases. Management stressed that operational momentum remains strong, particularly in South Africa, even as low inflation, rising utilities and non‑RSA headwinds complicate the backdrop.

Solid top-line growth

Group sales for the half year rose 7.2% to almost ZAR 137 billion, adding about ZAR 9.2 billion in new revenue despite a very low inflation environment. Supermarkets RSA, the core of the business, delivered 7.1% sales growth to roughly ZAR 115 billion, with like‑for‑like sales up 2.7% and confirming ongoing market share gains.

Maintained margins and trading profit

Trading profit climbed 5.9% to ZAR 7.7 billion, translating into a robust group trading margin of 5.7% for the half. Supermarkets RSA achieved a 6.2% trading margin, which management described as world‑class given the deflationary backdrop and intense promotional activity across the market.

Gross profit and segment margins

Gross profit increased 7.1%, broadly in line with sales, underscoring disciplined pricing and cost of sales control. Supermarkets RSA reported a gross margin of 25.3%, versus a group margin of about 23.8%, and management signalled confidence in sustaining a full‑year gross margin between 23.9% and 24.2%.

Digital and adjacent business momentum

The Sixty60 on‑demand platform produced turnover of around ZAR 11.9 billion, up about 34.6% year‑on‑year and proving its role as a growth engine. Adjacent businesses surged 70.9% to roughly ZAR 1 billion, with Petshop Science contributing 45 of 53 new adjacent stores and becoming a meaningful profit and traffic driver.

Store expansion and space growth

Shoprite continued its aggressive footprint expansion, opening 273 new stores over the past 12 months, of which 262 were in RSA supermarkets. Space grew 7.3% in the period, driven by Checkers Hyper expansion, and the group plans another 123 stores in the second half to deepen its reach.

Improved returns and shareholder rewards

Return on invested capital improved from around 17% to more than 19%, comfortably above the 12.3% weighted average cost of capital and signalling value‑accretive growth. Diluted headline EPS rose roughly 7.9%, and the final dividend was lifted 7.7% to ZAR 3.07 per share, reinforcing the group’s shareholder‑friendly stance.

Strong cash generation and disciplined CapEx

Core operations generated ZAR 13.3 billion in cash in the first half, underpinned by a ZAR 5.4 billion uplift from working capital improvements. Capital expenditure reached ZAR 3.9 billion, about 2.9% of revenue, and management is tightening spend, guiding to a lower full‑year CapEx of roughly ZAR 7.5 billion.

Customer and volume growth

Customer metrics were robust, with about 572 million customer visits in the half, up more than 5%, meaning the group now serves over 100 million customers per month. Volumes were strong with around 4 billion items sold, and affordability initiatives saw 9.5 million ZAR‑1 items and 55.6 million ZAR‑5 items sold to ease consumer pressure.

Non-RSA profitability pressure

Outside South Africa, supermarkets delivered 12.1% sales growth to around ZAR 11.5 billion, but profitability came under strain. Business interruptions in Mozambique, foreign currency shortages impacting imports and ongoing challenges in Angola eroded margins, highlighting the volatility of some non‑RSA markets.

Interest revenue decline and one-off effects

Interest revenue declined about 9.8% to ZAR 101 million, largely because Angolan bonds and bills worth ZAR 345 million matured, with partial repatriation of USD proceeds. This reduced the contribution of non‑RSA financial income to trading profit and added another drag on segment profitability.

IFRS 16 impacts on finance and depreciation

Net finance costs rose 13.4% as the IFRS 16 lease liability base expanded by roughly 15.5%, pushing up lease‑related interest charges. Depreciation and amortisation increased 7.9% to ZAR 4.2 billion, with the IFRS 16 component up 16.3% to ZAR 2.6 billion, putting pressure on reported earnings metrics even as underlying cash flows remained strong.

Low inflation and deflation pressure

Internal food inflation averaged just 0.7% in the half, with December slipping into deflation and about 14,000 items cheaper year‑on‑year, constraining monetary sales growth despite higher volumes. Promotions are now roughly 40% of the basket, supporting market share but increasing the risk that margins could come under pressure if inflation remains subdued.

Rising utilities and operating costs

Operating costs rose faster than sales in key areas, with water and electricity up 17.3% and pushing the utilities ratio to about 2.2% of sales, above the 2.0% target. Employee benefits increased 8.6%, while security costs rose 12.3% and advertising 6.6%, underlining the inflationary pressure on non‑merchandise expenses.

Disposals and transaction delays

The planned sale of the RSA furniture business to Pepkor has been delayed by competition tribunal processes and is now unlikely to complete in the 2026 financial year. Meanwhile, prior‑year restatements linked to Ghana and Malawi discontinued operations complicate comparatives, even as non‑RSA furniture proceeds of ZAR 568 million were received in January 2026.

Franchise and other segments subdued

Franchise operations were soft, with sales up just 1.7% and a net reduction of nine stores, reflecting pressure on independent operators and the low‑inflation environment. Other operating segments declined about 1.6%, pointing to pockets of weakness outside the core supermarket and digital businesses.

Supply-chain disruption risk

Management highlighted the ongoing risk from global logistics issues, including container market disruptions and Suez Canal constraints that can affect imports. While current on‑shelf availability is above 98%, brand‑owner service levels and confidential discount structures remain key swing factors for future gross margins and stock levels.

Guidance and forward-looking outlook

For the full year, Shoprite expects a gross margin of about 23.9% to 24.2% and a trading margin between 5.7% and 5.9%, versus a medium‑term goal of 6%, with a temporary Sixty60 cost reclassification weighing on gross margin early on. The group plans around 123 new stores in the second half, full‑year CapEx of roughly ZAR 7.5 billion, a gradual reduction of depreciation to 3% of sales and continued tight control of utilities and working capital.

Shoprite’s earnings call underscored a business that is growing volumes, protecting margins and generating cash despite a harsh consumer backdrop and regional volatility, especially outside South Africa. For investors, the combination of strong ROIC, disciplined CapEx, expanding digital platforms and stable dividends suggests the retailer remains well positioned, even as it navigates low inflation, rising costs and geopolitical supply‑chain risks.