CAPE TOWN Food retailer Shoprite Holdings countered falling food inflation and sluggish turnover growth in the year to June by focusing on cost control and management systems to post a 38,7% increase in its headline earnings a share to 79,9c.

The total dividend for the year was raised to 36c from 30,5c last year, the company said yesterday.

The results were below market expectations, and the group's share price initially dropped to 900c after the earnings were reported from 905c before firming later to 925c.

Analysts canvassed by I-Net Bridge had forecast headline earnings of about 93c a share, but had not factored in some items that were impossible to guess, such as forex costs and extra staff payments.

An analyst, who declined to be named , said that Shoprite's performance was "reasonable".

Shoprite's total revenue grew 7,5% to R27,2bn for the year to June compared with the same period last year.

In the 12 month-period food prices rose 3,6% and the group also experienced a nationwide strike last October and November in its Shoprite stores.

The company's sales outside SA rose 26,2% at constant currency conversion rates but only 2,9% in rand terms.

Shoprite CEO Whitey Basson said group turnover grew more strongly in the second part of the financial year and he was confident this growth would gain momentum. The retail group said it expected to derive increasing benefits from its substantial investment in information technology.

It also saw opportunities to open stores elsewhere , like Nigeria and Ghana.

Total spending on new stores in the coming year is expected to be about R800m, Basson said, but this cost would be offset by income from the sale of some of its properties.

The group's biggest brand is Shoprite, which accounts for almost half of its stores. This excludes franchises and also trades from 64 stores outside SA. The effects of low food inflation were felt most in staple products like mealie meal, but there was stronger growth in sales of more profitable non-food items.

Management also managed to contain theft of stock, and grow the number of customers by 6,1%.

The Checkers chain grew like-for-like sales, excluding those at new stores, at almost double Shoprite's rate.

In the past few years Checkers has been repositioning itself, targeting wealthier customers than Shoprite.

Another 34 new-generation Checkers stores will open in selected areas in the next 18 months.

The group is also expanding its USave chain to communities that are too small to support a conventional supermarket. It added 43 more stores in the year to June and another 60 are planned in the next 18 months.

USave shows a return on equity of 35%. It stocks only the 700 best-selling product lines and replenishes stores frequently to reduce storage space.

In the franchise division, the number of OK Franchise outlets shrank by 60 to 297 in the past year. This was as a result of poor trading conditions and tighter control of debtors.

Basson said the division suffered an operating loss of R11,7m because of write-offs, but he said OK Franchise now had a solid base for growth.