Dis-Chem Cuts Interim Dividend as Earnings Drop Amid Rising Costs

Shares in South African pharmacy and beauty retailer Dis-Chem experienced their steepest one-day decline since May 2018, dropping 12.63% to close at R24.42 on Friday. The sharp decrease brought the company's stock to its lowest level in three years, reducing its market value to approximately R21 billion.

The market sell-off followed the release of Dis-Chem's financial results for the six-month period ending in August. Despite an 8% increase in overall revenue to R23 billion, higher operating costs and heavy investment spending negatively impacted the bottom line. Headline earnings per share fell by 12.8% to 64.3 cents.

In response to the earnings decline, the group reduced its interim dividend by 12.9% to 25.62 cents per share. The drop in profitability occurred despite growth across both the retail and wholesale divisions. Retail revenue rose 8.2% to R19.6 billion, while wholesale revenue climbed 9.6% to R18.4 billion.

Company executives attributed the squeezed margins to expenses outpacing revenue growth. Total income increased by 9% to R7.2 billion, but group expenses surged by 12.1%. Retail expenses grew by 13.7%, and employment costs increased by 12.8% during the period.

CEO Rui Morais explained that the company continued investing heavily in operations and digital infrastructure, including its innovation hub and new applications. Dis-Chem has spent R240 million on digital re-platforming to improve customer interaction and pharmacy efficiency, addressing what Morais admitted was previous underinvestment in digital capabilities.

Morais also noted that consumers remain under financial pressure, with shoppers increasingly timing their purchases around paydays and seeking out promotions. Although front-shop volumes grew by 5.5%, outperforming the wider market, much of this growth stemmed from customer switching rather than an overall increase in consumer spending.

Looking ahead, Dis-Chem expects earnings to improve during the second half of the fiscal year as investment spending normalizes and distributes more evenly across the annual period. The retailer also plans to continue expanding its physical footprint, targeting 30 new pharmacy openings in the 2027 financial year.