Shares in South African pharmacy and beauty retailer Dis-Chem experienced their largest one-day drop since May 2018, falling 12.63% to R24.42 on Friday. This decline resulted in the company's market value decreasing to approximately R21 billion, significantly less than its rival Clicks' market value of R49 billion. The substantial drop in Dis-Chem's shares came after the company reported lower interim earnings and a reduced dividend.
According to Dis-Chem's results for the six months ending August, the company's revenue increased by 8% to R23 billion. However, higher costs and investment spending negatively impacted the bottom line, resulting in a 12.8% decline in headline earnings per share (HEPS) to 64.3c. The interim dividend was also cut by 12.9% to 25.62c per share. Despite the decline in earnings, Dis-Chem's retail and wholesale businesses both experienced growth.
Dis-Chem's retail revenue increased by 8.2% to R19.6 billion, while wholesale revenue grew by 9.6% to R18.4 billion. The group's total income rose by 9% to R7.2 billion, driven by an improvement in the retail income margin. However, group expenses increased by 12.1%, outpacing revenue growth. Retail expenses rose by 13.7%, and employment costs increased by 12.8%.
Dis-Chem's CEO, Rui Morais, stated that the company has continued to invest in its operations and digital capabilities. The company's innovation hub, bigly labs, received increased investment during the period, focusing on developing the retailer's digital systems and services. Since its launch, Dis-Chem has spent R240 million on digital infrastructure and re-platforming, including work on a new app.
The new app was initially made available to 22,000 customers, with plans for a wider release in the final quarter of the 2027 financial year. Morais acknowledged that Dis-Chem had previously underinvested in its digital capability. The recent investment aims to improve customer interaction with the group and make pharmacy services more efficient.
Dis-Chem is also revamping its store format with the "Store of the Future" model, which combines pharmacy, health, and beauty services in a redesigned retail space. Early trading at these stores has been encouraging, with initial trading densities 25% higher than those of older-format stores. The company opened 14 retail pharmacies during the six-month period, bringing its total to 328 at the end of August.
Dis-Chem's loyalty program, Better Rewards, has helped attract customers, with active membership increasing by 27% to 8.2 million. Members generated 86.1% of sales, and the program has returned R1.5 billion in value to customers through discounts and other benefits since its launch in October last year. However, Morais noted that customers remain under pressure, with more shoppers timing purchases around payday and seeking promotions.
Key points
- Dis-Chem shares fell 12.63% to R24.42 on Friday, their largest one-day drop since May 2018.
- The company's revenue increased by 8% to R23 billion, but higher costs and investment spending weighed on the bottom line.
- Dis-Chem's loyalty program, Better Rewards, has attracted 8.2 million active members, generating 86.1% of sales.
