Dis-Chem turnover fails to move investors

The trading update is largely upbeat, but investor enthusiasm for the JSE’s retail sector has been tempered 
Shares in recently listed healthcare retailer Dis-Chem fell 3.7% on Friday after the release of a trading update for the 22 weeks to end January.
The trading update was largely upbeat, but investor enthusiasm for the JSE’s retail sector has been tempered in recent months after evidence of trading strain in certain mainstay companies.
Still, shares in Woolworths, Clicks and Massmart all finished higher on Friday. Market watchers did point out that Dis-Chem had been trading close to an all-time R24.99 high recorded earlier in February.
Dis-Chem reported retail turnover up 14.3% to R6.7bn, while group turnover was up 13% to R7.3bn.
At face value, the retail segment appeared to have performed vibrantly with comparable store growth and sales price inflation for the period coming in at 9.1% and 6.5% respectively.
CJ Distribution, Dis-Chem’s wholesale segment, increased turnover 15.2% with sales price inflation averaging just 4.8%.
Dis-Chem CEO Ivan Saltzman reckoned trading was in line with expectations. He was encouraged by the performance of the eight new Dis-Chem stores opened in November.
Saltzman noted the new convenience-focused format had traded at densities that were higher than expected.
The company’s Northridge store in Bloemfontein, which was flooded late in 2016, was being rebuilt and would reopen in the second quarter. “Although this had no effect on our comparable turnover number, it did impact both the retail and group turnover numbers by 0,6%,” Saltzman said. Direct losses from the Northridge store were fully covered by insurance.
Saltzman said Dis-Chem continued to expand and planned to add another 21 stores in the 2018 financial year. “This new space, together with maturing space within the existing store footprint, is expected to drive strong retail and comparable store growth in the years ahead, both of which are supported by the resilient health and beauty markets that we operate in.”
In spite of the market’s response to the trading update, Chris Gilmour, an investment analyst at Barclays Wealth and Investment Management, said Dis-Chem remained a “top quality and classy” retail operation.
He conceded that Dis-Chem’s market rating looked incredibly expensive. “But this looks like a very special firm, and I would not have a problem buying the share for the longer term.”

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