Labour action takes toll on Dis-Chem
A strike led to longer delivery lead times, more investment in security, and the relocation of 400 staff from Midrand for security reasons
A protracted labour dispute compounded the difficulty faced by healthcare product chain Dis-Chem, which — like other companies in the retail sector — had to cope with a struggling economy.
But the company managed to grow revenue 10.7% to R9.4bn for the 22 weeks to February 2. This increase came despite the national strike by the National Union of Public Service and Allied Workers (Nupsaw), which was anticipated to cost the group R50m in lost income and additional cost.
The group warned that the strike, which started on November 16 and was supported by 2,300 of its 15,000 staff, had affected operations at three of its four distribution centres, and was expected to push earnings growth below its guidance range of 16% to 24%.
“The impact on our business as a result of the prolonged period and intensity of the strike has been more severe than was initially estimated,” the group said in a trading update.
The industrial action had resulted in longer delivery lead times, increased investment in security, and the relocation of 400 of the staff based at its head office in Midrand to other premises, for security reasons.
The group incurred additional costs as it needed to, among other things, also hire and train temporary staff to replace striking employees.
Nupsaw was demanding a R12,500 minimum wage, a 12.5% annual increases for the next three years, and a guaranteed annual bonus.
Dis-Chem said it felt the demands were unreasonable given the difficult economy.
The tough trading conditions for the retail sector could be seen in Statistics SA reporting total retail sales only rising 1%, and pharmaceuticals and medical goods, cosmetics, and toiletries sales increasing 0.1% for the final quarter of 2018.
Dis-Chem’s December figures reflected problems in the sector, with revenue from its retail operation only rising 6.2%, and comparable number of store falling 2.5%, for the month.
The group’s rival, Clicks, said in January that sales for the 20 weeks to January 13 rose 7.8%, and 4.5% when new stores were not included.
Even taking into account that Dis-Chem was hurt by labour action and the struggling economy, AlphaWealth fund manager Keith McLachlan said it had still underperformed.
McLachlan said as the group was going through a growth phase (it planned to add a further 22 stores in this financial year to the 129 it already ran), he expected it to perform a lot better when measured against its current valuation.
Gryphon research analyst and portfolio manager Casparus Treurnicht was also disappointed by its performance. Clicks posted a better like-for-like number, and its new stores contributed to sales but not its bottom-line earnings, he noted.
Treurnicht said though he would be able to make a better comparison when Clicks's results came out at the end of February, he expected Dis-Chem to have performed worse over the same period.