Be pharmacy chain weighs on Shufersal results

Be pharmacy

Overall, group revenue and margins rose in the third quarter, but high finance expenses cut profit

Shufersal, Israel's leading food retailer, reported positive trends today for the third quarter of 2019, with improved revenue and profit margins. Higher financing expenses, however, reduced the chain's net profit by 14% to NIS 55 million.

Shufersal's revenue grew 4% to NIS 3.4 billion in the third quarter, pushing up the chain's gross and operating profits and profit margins, with support from its customers club credit card activity.

Financing expenses soared 130% to NIS 65 million, mainly as a result of the IFRS 16 accounting standard on leasing, which affected Shufersal's bottom line.

Shufersal's net profit in the first nine months of 2019 slid 30% to NIS 151 million. In food retailing, the chain's main activity, revenue rose 3% to NIS 3.45 billion, despite a 0.6% dip in same store sales and a dip of a little under 1% in sales per square meter.

Pharmacy activity still detracting from profits

Shufersal reported a 38% rise to NIS 189 million in quarterly income from pharmacy activity through the Be chain (formerly New Pharm) as a result of new branches opened and increased revenue from same stores. The chain's pharmacy activity continues to detract from its profits, however, with the operating losses from this activity increasing from NIS 10 million in the third quarter of last year to NIS 12 million in the third quarter of this year. Shufersal attributed this trend to "continued deployment and enlarging the chain's customer base, rebranding, expanding the basket of products, opening concept branches, and upgrading the chain's branches."

The negative effect of Be's activity on Shufersal's activity can be seen more clearly in the results for the first three quarters of 2019, in circumstances similar to the quarterly trend. Be's operating losses in the period rose from NIS 19 million in January-September 2018 to NIS 40 million in the first nine months of this year.

Shufersal launched the Be brand a year ago this month, after acquiring New Pharm for nearly NIS 130 million. As of now, the operating losses on this activity have amounted to NIS 100 million in less than two years.

Shufersal CEO Itzik Abercohen said today, "I believe that starting next year, Be's numbers will improve dramatically in comparison with today. There is no reason that it should not make a profit in the fourth quarter of next year. Anyone who wants to see results needs patience."

Shufersal's share price is down today, following the publication of its results. There has been little change in the share price this year, leaving the company with a NIS 5.7 billion market cap.

Published by Globes, Israel business news - en.globes.co.il - on November 27, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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