Shufersal today opened the reporting season of the food marketing chains for the fourth quarter of the year and presented a report that was weak and lower than expected.
Revenue was down 6.7% in the quarter (slightly lower than expected) in light of a decline in retail revenue amid strong Corona-sponsored comparative data, with growth in BE operations offsetting some of the erosion.
While gross profit amounted to 27% (expected, similar to the previous and previous), operating profit eroded to 4.4% in the quarter (below expectations) against the background of a decrease in retail activity in light of the decline in SSS data. Also in terms of operating profit margins, an improvement in the BE chain offset some of the erosion in the retail arm.
The total net profit recorded in the quarter amounted to NIS 100 million, which was supported by an increase of NIS 51 million in the fair value of investment real estate (compared with NIS 13 million at the same time), compared to our estimate of NIS 80 million. Without the increase in the fair value of investment real estate.
A dividend of NIS 140 million was also announced.
Segmentation by activity sectors:
Retail
There was a sharp decline of 8.3% in revenue in light of strong comparative data under the auspices of the Corona, which includes a 9.5% decline in SSS data alongside a 11.8% decline in sales per square meter.
Although we estimate a sharper decline in SSS data compared to the 4.5% decline recorded by the consumer goods market in the quarter (according to IBI’s processing of Sterncast data), this is a slightly sharper decline than our earlier estimate.
On the other hand, the expansion of activity to the institutional market (thanks in part to the acquisition of Amiga) offset some of the erosion.
Thus, due to the erosion in SSS data, the operating margin of the retail sector decreased to 3.2% in the quarter (compared to 4.3% at the same time).
In the tone of the summary for 2021, the share of online activity amounts to 20.5% of revenues, while the share of the private label continues to grow and stands at 26.6%.
Examining the sector’s results by segmentation, it can be seen that the erosion in the operating margin was due to erosion in both the discount format (which includes the online activity) and the neighborhood format.
In doing so, we note that in 2021 there was a 6.5% decrease in the SSS of the neighborhood format alongside a decrease of 5.4% in the SSS of the discount activity.
There was a nice increase of 22.9% in revenue in the quarter due to the opening of branches, growth in online activity, an increase of 16.7% in SSS (and an increase of 8.7% in sales per square meter) and new activities in the field of corona testing.
Thus, in light of the impressive growth in the fourth quarter and progress in the strategic moves, there was an improvement in the operational aspect to a profit of NIS 3 million in the quarter (compared with a parallel operating balance).
נדל״ן
Revenues of NIS 13 million (external) were recorded, similar to the corresponding quarter, along with an operating profit of NIS 39 million (compared with NIS 37 million at the same time).
Incidentally, in the reports, Shufersal stated that it intends to act so that the real estate sector “will serve as an additional engine alongside the retail activity and not just as a support arm for this activity, thus creating significant value for the company …”.
Another anecdote from the reports:
The company estimates the investment for the establishment of the two online automation centers at NIS 700 million, compared with a previous estimate of NIS 650 million (and an initial estimate of NIS 600 million). The investment is expected to be spread over 5 years, with NIS 475 million invested so far.
Shufersal further updated that after the start of the operation of the Kadima Automated Center in the previous quarter, it is now progressing to full-scale activities, with the construction of the envelope and installation of automation equipment in the large center in Modiin nearing completion and its operations expected to begin towards the end of the year.
And what is expected next?
We believe that Shufersal’s (lower than expected) report for the fourth quarter gives a taste of the reports expected later in the days of moderation in the demand environment under the auspices of the corona in the retail arm.
However, we estimate that the improvement in the BE network is expected to continue to offset some of the expected harm.
With regard to the change of management in the company, we believe that this situation may interfere to some extent with the day-to-day running of the business, which should focus on strengthening the many and relatively new growth engines, including online automation, the business arm, continued promotion of BE’s strategic moves. Discount on the Facebook platform and of course expansion into a new field through the purchase of a mini line. Another significant challenge lies in dealing with the public discourse, when we estimate that Shufersal is at the beginning of a very “explosive” period in any issue of the cost of living, and the management of the leading food chain in Israel on this sensitive issue may have critical consequences. Also, the change in tone on the part of the Competition Authority and the cloud of inquiry regarding price coordination in the sector alongside our expectation of increased competition are forming a less comfortable business environment than in the past.
And anyway … investors’ eyes are now on a potential struggle for control of the company, which is expected to support the share price until the picture clears.
We remain on the recommendation of a market return, at a target price of NIS 29 per share (per pound).