For the first time, Spar SA’s expense-to-sales ratio exceeded its GPM. While the cost blowout in 1H26 may have been caused by non-recurring issues, our analysis indicates that the cost base has been trending upward over time. We show that staff efficiency (measured as staff per store serviced) has not improved since 2014, and staff costs-to-sales has increased from 3.5% in 2021 to 3.8% in 2025. We also find cost creep in warehousing and distribution expenses over the past 13 years, and conclude that there should be considerable opportunities for cost optimisation in Spar SA. We assess Spar’s vulnerability to higher fuel costs, but determine the impact to be marginal.
The stability of SPP’s Irish business provides a welcome offset to its faltering SA operations. We expect its resilience to continue, allowing management to focus on resolving the issues in the SA business.
Overdue debtor amounts spiked 19.6% y-y, and we estimate that the number of stores in distress may have risen from 115 to 133 over the past year. Spar may not have the capacity to take over all the distressed stores, and, if the stores fail, Spar SA’s footprint could shrink by up to 5%.
While SPP has adequate debt headroom, there is some concern about the interest cover covenant. Term margins on SA debt were cut by 50bps in December, but we think the next covenant assessment in September could result in higher term margins. We assess the impact of higher interest rates, and estimate that SPP may have to reduce its debt by R936m if interest rates rose by 200bps, to avoid a covenant breach.