Retail details: Shoprite dominates SA sector as segmental performance becomes clear

If the festive season was cause for celebration on the JSE, January was the I’m-too-old-for-this hangover that few people expected. Truworths was the final straw, giving the sector another major knock to close out the month.

Truworths is down by almost 16% since the start of the year and some of the other big names are just as bad, like The Foschini Group, which is down by 15%, and Mr Price, which is down by more than 14%.

The Woolworths share price was given a parachute by the solid performance of Woolworths Food, so that’s down by “only” 6% this year. Pepkor hasn’t even released an update this year, yet it is down by more than 10% as the market panicked about the sector in general.

The interesting thing is that Mr Price has been sold off just as sharply as Truworths and The Foschini Group despite releasing vastly superior numbers. Relative valuations are relevant here, as Truworths is trading on a price-earnings multiple of 10.5x after the pain and Mr Price is much higher at 19x.

The multiples reflect the performance gap, as Mr Price certainly seems to be the far better business at the moment. Truworths released genuinely horrible numbers for the 26 weeks to 29 December 2024, with group sales up by just 2.4%. As you dig deeper, the substantial variance in segmental performance becomes clear. Office UK (more popularly known as Office London) achieved growth of 11.3% in GBP and 9.9% in ZAR. Truworths Africa was a drag of note, experiencing a drop in revenue of 1.1% at a time when Mr Price was firmly in the black. Cheap is often cheap for a reason when it comes to valuation multiples and Truworths is proof of that.

Woolworths was also poor, with growth in the last eight weeks of 2024 of just 0.9% in the Fashion, Beauty and Home segment. Unlike at Truworths, the overseas exposure at Woolworths isn’t pulling things into profitability. It’s quite the opposite actually, with Country Road Group in Australia seeing its sales go down under with a drop of 6.2%. At least Woolworths Food grew by 9.0% excluding the acquisition of Absolute Pets, but that wasn’t anywhere near enough to save the group results.

The Woolworths Food result also needs to be compared directly to what we are seeing at Shoprite. It’s helpful that Shoprite released an update on the same day. Over essentially the same period as the Woolworths update, Checkers and Checkers Hyper grew by 13.5%. That’s a whopping 450 basis points ahead of Woolworths Food! And if you think that Woolies Dash is meaningfully closing the gap in the on-demand space, I’m afraid that this just isn’t the case. Growth in Dash was only slightly superior, coming in at 49.2% vs. 47.1% at Checkers Sixty60.

Despite releasing strong numbers, Shoprite did not escape the retail sell-off on the JSE last month. The share price is down by 3% and the PE multiple has dipped to just below 23x. The market may well be missing a trick with Shoprite, as the lack of load shedding in this period would have done great things for the underlying operating expenses. Growth being led by Checkers and Checkers Hyper is also good news, as these are the higher-margin formats in the group. The release of results is scheduled for Tuesday, 4 March and that could be a decent catalyst for some share price action, as Shoprite looks to be one of the few SA retailers that has delivered positive results.

Get in there, Lewis!

A strong performance from the likes of Shoprite is hardly a surprise in the market. As for Lewis, the expectation is generally for modest growth and the usual boost from share buybacks and other cleverness to improve shareholder returns. In the latest period though, Lewis suddenly stuck its hand up as a growth stock!

Merchandise sales at Lewis accelerated beautifully towards the end of the year. After growing by 7.7% in the first quarter of the financial year and 9.3% in the second quarter, they finished off the calendar year with 9.9% growth in the third quarter. The biggest change was in cash sales, which suddenly jumped by 14.4% for the quarter. When you consider that cash sales over nine months grew by just 1.5% (including that third-quarter result), clearly something changed out there.

The obvious theory is the two-pot retirement payouts, which logically could have landed in semi-durable and durable household goods that were otherwise unaffordable without the benefit of early access to pensions. It’s therefore unlikely that we will see these growth rates sustained into 2025, although a fresh drop in interest rates might help give consumers a bit more cash in their pockets to spend on household items like furniture.

Lewis is up by 89% in the past 12 months and managed to come in almost flat for January despite the pressure in the rest of the retail sector. Even after that rally, it sits on a PE multiple of just 7x. That may sound like an obvious bargain vs the clothing retailers, but you have to consider the general lack of affordability among South African consumers and how difficult it is for Lewis to grow. If they can somehow keep growing at this rate into 2025, then this could be another year of market-beating returns for Lewis investors.

Here’s the stat that might shock you the most: over five years, the Lewis share price is up by 164% vs. 144% at Shoprite. The magic really happened in 2024 as Lewis saw the benefit of improved South African conditions, with the lesson here being that beaten-down stocks are the right place to be when things improve at the macro level. They also happen to be the worst place to be when things deteriorate.

This is why investors tend to build portfolios that include more stable and resilient names at the core, along with peripheral positions that are capable of really smashing the index in a good year. Those who chose Lewis to play that role are certainly smiling. Sadly, those who came into 2025 with substantial clothing retailer positions have had the opposite experience. DM