The retailer’s focus remains on continued margin improvement, operational execution in its core markets, a disciplined approach to capital allocation and delivering the remaining.
One of South Africa’s largest retailers, Spar, embarked on a turnaround strategy aimed at strengthening its balance sheet and recovering margins. However, months later, the strategy has yielded lower profits and an R4 billion loss.
The financial results for the 26 weeks ended 28 March 2025, released on Wednesday, show exactly what the retailer anticipated in its announcement last week.
According to the Johannesburg Stock Exchange (JSE) listings requirements, companies are required to publish a trading statement as soon as they are satisfied that a reasonable degree of certainty exists that the financial results for the period to be reported on will differ by at least 20% from the financial results for the previous corresponding period.
Retailer’s profits nosedive
The retailer last week warned shareholders that headline earnings per share could decline by 24% and 34%, resulting in a loss of R4.4 billion and lower profits.
The financial results show that the retailer’s operating profits nosedived by 5.7% to R1.35 billion, compared to R1.43 billion during the same period in 2024.
“Headline earnings per share from continuing operations were 450.1 cents, a marginal decrease of 0.4% from 451.9 cents in the prior comparable period,” reads the retailer.
“In line with the Group’s capital allocation priorities and ongoing restructuring, no interim dividend for the 26 weeks ended 28 March 2025 has been declared. This decision will be reconsidered based on future macro-economic and operating conditions.”
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Retailer’s strategy
Spar’s European operations were the centre of the strategy. The retailer has discontinued its operations with Spar Switzerland and the Appleby Westward Group (AWG).
“These businesses recorded aggregate post-tax losses of R4.4 billion, including impairments of R4.2 billion.”
The retailer has also concluded the disposal of Spar Poland in January 2025. Which was one of the five key focus areas for Spar. The second key focus area that has been achieved is the completion of the Group’s debt restructuring in March 2025 and May 2025.
The other key focus areas include completing a strategic review of European operations, further rolling out the SAP system, and improving the Southern Africa EBIT margin to 3% while achieving a leverage ratio of 1.5 to 2.0 times by the end of FY2026.
It’s not all bad news
The retailer stated that it is in discussions with a UK-based company that is well-positioned to develop and grow AWG in South West England.
In Switzerland, it has been in talks with parties with extensive business interests in the region and experience in European food retailing and distribution.
It’s not all bad; the Group’s revenue from continuing operations remained steady at R66.1 billion, while gross profit increased to R7.1 billion.
In Southern Africa, wholesale turnover increased by 1.7%. Combined grocery and liquor wholesale revenue rose by 1.1%, while retail revenue increased by 1.9%.
They have attributed the performance to being affected predominantly by lower food inflation, post-election unrest in Mozambique, the timing of Easter falling in the second half of the current financial year, and store closures in Gauteng.
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Balance sheet
“The Group made progress in strengthening its balance sheet, with a clear focus on improving gearing. Net borrowings for continuing operations stood at R6.6 billion.
“The successful refinancing in South Africa and Switzerland improved liquidity and balance sheet stability with an improved debt maturity profile.”
Spar anticipates that the successful completion of the divestments of Spar Switzerland and AWG will materially deleverage and strengthen the balance sheet.
Cash flow performance improved materially, driven by tighter working capital management and reduced capital expenditure.
What the future holds for Spar
Spar said its focus remains on continued margin improvement, operational execution in its core markets, a disciplined approach to capital allocation and delivering the remaining.
Encouragingly, post-period trade has shown positive momentum across key regions.
“The intended divestments of Spar Switzerland and AWG are aligned with the Spar Group’s broader portfolio optimisation objectives and represent a meaningful opportunity to unlock value by transitioning the businesses to owners with strong local knowledge and relevant experience in the European retail sector.
“While macro-economic challenges remain, including pressure on consumer wallets and uncertainty from global trade tensions, Spar remains focused on delivering the remaining key priorities, which include the further SAP roll-out, margin expansion and reducing debt.”
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