Shoprite (SHP) – Firing on all cylinders

SHP’s strong FY21 results show the business is thriving on several fronts. Checkers continues to gain market share in the higher-income segments, supporting the 7.0% TPM of the SA Supermarkets division. However, on a pre-IFRS 16 basis, we estimate the division’s TPM is still lower than its historical average, which suggests that refreshed Checkers may have a much higher cost base.

The core Shoprite business has been relatively weak in recent years. We think the low growth in Shoprite’s core market made the MSM deal appealing. SHP has done well to expand its private label offering, and we think gains were mostly made in the premium ranges. However, benchmarking against WHL’s Food, we think SHP’s GPM expansion may be approaching a peak of c.25%.

We think it may be opportune for SHP to evaluate the strategic fit of its Furniture division. As management focuses on driving efficiencies and customers experience, the slow stockturns and credit risk of the Furniture business may dilute improvements in other areas.