(Bloomberg) -- Shoprite Holdings Ltd. will sell its furniture unit to a smaller rival as Africa’s largest supermarket chain focuses on expanding its food business in its home market as well as growing specialist clothing, baby, outdoor and pet stores.
The South African firm will sell the business to Pepkor Holdings Ltd. for about 3 billion rand ($168 million) in cash, the buyer said in a filing on Tuesday.
“There’s a lot more one can extract out of that business and it’ll require significant capital investment,” Shoprite Chief Executive Officer Pieter Engelbrecht said. Pepkor will be able to integrate the purchase seamlessly given its investment in the relevant technology, “and it allows us to appropriate the capital where we are enjoying a much better return,” he said.
Shoprite’s shares fell 6.4% as of 4:04 p.m. in Johannesburg after it reported annual net income of 6.25 billion rand. While profit rose 6.2% from a year earlier, it missed the average analyst estimate. Pepkor’s stock was 3.1% lower, in line with the nine-member FTSE/JSE Retailers Index.
For Pepkor, which is the continent’s biggest clothing retailer and has struggled to scale up its business that sells beds, sofas and appliances, the purchase will help boost stores by a quarter to 1,300.
Cape Town-based Shoprite has also pulled back its grocery business in several other countries across the continent.
“The African story remains one of high inflation and volatility on exchange rates,” Engelbrecht said in an interview. “In local currency, the businesses are actually doing quite well, but once you convert to our reporting currency, being the rand, then all the money disappears.”
Shoprite will instead focus on adding 195 South African supermarkets, which accounts for 81% of revenue.
Customer visits to its core local food stores, including Checkers and Shoprite, climbed 3.7% in the year through June, with the average amount spent by each shopper rising 8.4%, it said in an earnings statement.
--With assistance from Ana Monteiro.
(Updates with Shoprite CEO’s comments from third paragraph.)
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