Weak reports for Shufersal with a decline in revenue, profit, and same-store sales. The stock is plummeting

The weakness in sales continues for the Shufersal chain, managed by its controlling shareholders, brothers Yossi and Shlomi Amir. The chain reports revenue of 3.4 billion shekels in the second quarter, a decrease of 7.5% compared to the same quarter last year.

The weakness in sales also translated in the past quarter into a decline in net profit, which fell by 34% and amounted to 125 million shekels. In the first half of the year, revenue stood at 7.1 billion shekels, a decrease of 1.6% compared to the same half-year. Net profit for the half-year also declined, albeit at a more moderate rate of 14%, amounting to 299 million shekels.

Shufersal also shows weakness in same-store sales — that is, those that were open in both periods. In the second quarter, same-store sales fell by a sharp 8.6% compared to the same quarter, and for the half-year, they fell by a more moderate rate of 2.7%. Shufersal explained that the decrease in sales in the retail sector for the quarter was mainly due to the timing of the Passover holiday and the moderation of the impact of the "Roar of the Lion" campaign.

Furthermore, the management attributes the weakness in sales to the continued investment in upgrading branches, closing loss-making branches, alongside opening new branches and completing branch conversions. All these, alongside adjusting branch operating hours, implementing new technologies, and logistics and distribution infrastructure, are responsible for the weakness in sales. The company explains the decrease in same-store sales by the fact that renovations were carried out in dozens of its branches across the country, which affected revenue per square meter metrics and harmed sales.

Shufersal's real estate arm continues its momentum

Despite the weakness in sales and net profit, Shufersal is interested in rewarding investors and announced a dividend distribution of 180 million shekels. The chain noted that in the retail sector, "the group continues to implement the 'customer at the center' strategy, which combines investment in growth engines in digital, finance, and business, alongside opening branches in all formats, upgrading branch appearance, improving fresh departments, and direct meat imports from South America, increasing the variety of brands, expanding the supported brand into new categories, strengthening the non-food import arm, commercial cooperation with LEGO, implementing innovative technological tools, and more. Alongside this, Shufersal continues with efficiency measures that mitigate the rise in input costs in the economy (wage increases and the absorption of foreign workers) alongside closing loss-making branches."

In the real estate sector, Shufersal's real estate arm, the company Laro, continues its momentum with two deals in synergy with retail, totaling about 154 million shekels. These deals join the frameworks signed with BIG in Rishon LeZion and with Tidhar in Jerusalem. In Kiryat Motzkin, the remaining rights in the Kurdani complex were purchased for a total of about 85 million shekels, and now the group holds full rights to the complex. However, despite the many developments in the field, the company does not plan to issue its real estate arm in the near future separately from the retail arm.

In Netanya, all commercial rights were purchased in a project in the Havatzelet HaSharon neighborhood, covering an area of about 2,700 square meters, for about 69 million shekels. A Shufersal branch is also expected to operate in the complex. In addition, the company announces the receipt of a building permit for the construction of a new commercial center in the Ramot neighborhood in Beersheba.

"A substantial part of the decline in revenue is seasonal"

Analyst and investment manager Lior Wider commented on Shufersal's financial results and noted:

"This is a mixed report that leans towards operational weakness, but requires an in-depth reading of the full picture. On the less positive side, it is impossible to ignore the sharp erosion in operating profitability (which fell to a level of 5%) and the decline in same-store sales, which illustrate that the rise in wage inputs and intense retail competition are pressing on core results, and that the efficiency measures and branch closures of the Amir brothers' management have not yet matured into an improvement in the numbers."

Wider added: "On the other hand, a substantial part of the decline in revenue is seasonal and accounting-related due to the timing of the Passover holiday (which was 'drawn' into the first quarter), the private label share continues to grow nicely, and the real estate arm proves itself as a solid value anchor that continues to expand. The balance sheet strength, zero net financial debt, and the fat cash register give the company a wide breathing room and a strong back for dividend distribution, but in the coming quarters, the market will want to see a containment of margin erosion and a practical translation of efficiency plans into the bottom line."