With 2023 getting off to a less-than-promising start for the general South African economy against the backdrop of persistent load-shedding and an expected decline in quarterly growth, we look at how local retail giant Shoprite Holdings Limited (JSE: SHP), fairs against world-renowned American multinational retailer, Walmart Inc. (NYSE: WMT).
Current Sentiment in South Africa
Rife with negative sentiment, persistent power outages have mauled the South African economy amidst a nationwide energy crisis, which has led to stagnated economic growth and depressed investor sentiment as of late. South African gross domestic product (GDP) declined by 1.3% in the fourth quarter of 2022, when there were merely two days without power outages, predominantly owing to the nation’s embattled power utility. Seeing that every day of 2023 to date has been hindered by load-shedding, “real GDP is likely to shrink by a further 0.4%” in the current year’s first quarter, according to analysts at Nedbank. Despite reaching an all-time high in 2022, South Africa’s economy has grown by a measly 0.3% from pre-pandemic levels in 2019, significantly lagging behind the country’s 3.5% population growth over the same three-year period. While South African GDP has increased from ZAR4.58 trillion in 2019 to ZAR4.60 trillion in 2022, the country’s population size has grown far more significantly, from 58.5 million to approximately 60.6 million over the three years, from 2019 to 2020, a short-term trend which will be unsustainable in the long-term.
The JSE Top 40 Index (J200) vs S&P 500 Index (SPX)
Concerning the chart below, it is clear that, from 1 February 2006 to 1 March 2023, the S&P 500 index (SPX) has significantly outperformed the JSE Top 40 index (J200), both measured in U.S. Dollar terms. Over the period, the SPX (orange line) has returned a stellar 202%, while the J200 (blue line) has yielded only 35%.
Comparing Shoprite to Walmart
A very different picture is painted when we compare Africa’s largest retailer, Shoprite Holdings Limited (JSE: SHP), to world renowned American retail giant Walmart Inc (NYSE: WMT). Over the most recent twenty-year period, it is clear that Shoprite (red line) has delivered an astounding performance, returning more than 1440%. On the other hand, Walmart (green line) has lagged behind Africa’s largest retailer, yielding just over 170% over the same twenty-year period.
Shoprite Holdings Limited (JSE: SHP)
Despite double-digit sales growth for Africa’s largest retailer and an impressive year-over-year increase in basic earnings per share (EPS), South Africa’s ongoing energy crisis has depressed Shoprite’s bottom-line figure and cut into shareholder dividends. Constant power outages resulted in a “total spend of R560 million on diesel” for the six-month period that ended 1 January 2023, resulting in Shoprite’s “trading profit only increasing by 8.6%, leaving the group’s trading margin at 5.7%, down from 6.1% reported last period.” If the country’s energy crisis persists, Shoprite could be staring down a potential R1 billion annual diesel bill come the end of the next six-month period.
Walmart Inc. (NYSE: WMT)
World-renowned American multinational retailer, Walmart Inc., reported a total revenue figure of $611.3 billion for its 2023 financial year, 6.7% up from its 2022 financial year-end figure of $572.8 billion. Despite impressive year-over-year revenue growth, Walmart saw its annual operating income decline 21.3% from 2022 to 2023, from $25.9 billion to $20.4 billion. The retail giant also saw its basic earnings per share (EPS) figure decline 12.4%, from $4.90 per share for the 2022 fiscal year ended 31 January to $4.29 per share for the 2023 fiscal year-end. Moreover, Walmart saw its free cash flow figure increase by 10.5% year-over-year, from $11.08 billion to $12.24 billion.
Summary
While negative sentiment has prevailed as a popular theme amongst most South Africans, with 2023 marked with persistent load-shedding, history shows that it hasn’t always been all doom and gloom, specifically for Africa’s largest supermarket retailer, Shoprite (JSE: SHP). The local retail giant has significantly outperformed its American counterpart, Walmart (NYSE: WMT), over the most recent twenty-year period. Will South Africa’s ongoing energy crisis derail Shoprite’s share price performance in the future? Only time will tell.
Sources: businesstech, CNBC, dailyinvestor, KoyFin, Shoprite Holdings Limited, Walmart Inc., Trading view
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