On a roll, Dis-Chem plans big expansion

Since making its debut on the local bourse seven months ago, Dis-Chem's share price has risen about 40%. Now the pharmaceutical retailer is looking to up the ante with acquisitions.

CEO Ivan Saltzman said on Thursday that there were potential mergers and acquisitions in the pipeline for the group. He would not disclose details, but said that any acquisitions "would be aligned to what we do".

Although it's early days for Dis-Chem on the JSE, the company, which was established in 1978, has big plans to expand to 200 stores in two to five years, a plan that Alec Abraham, a senior equity analyst at Sasfin Securities, described as "ambitious".

"They've got quite ambitious store targets in terms of stores, so to open new stores is a tall order.

"If they can buy pharmacies or small groups of pharmacies just to bump up the new store numbers, I certainly think that makes sense," said Abraham.

"They've got 108 stores and they want to try and double that over the next two years, so that's going to take them to 200.

"If they want to catch up and have the kind of footprint that Clicks has you won't be able to achieve that just by opening up green-field pharmacies," said Abraham.

In the group's maiden results for the 12 months to February, Dis-Chem reported that turnover increased 14.7% to R17.3-billion from the previous year's, with like-for-like turnover rising 9.1%.

Gross profit increased 19.4% to R4.2-billion from the previous year, while operating profit increased 24.3% to R1.1-billion with the retail margin increasing 0.4%.

Saltzman said good results could be attributed to its consistency over the years.

"Every year is better than the year before and it's just very telling I suppose."

Saltzman said that the group did not have to do any extra promotional activity as it had always been a discounter.

But the retail industry is facing trying times, a trend that is expected to last for the next two years.

Speaking at the South African Council of Shopping Centres research conference this week, Alexander Anson-Esparza, head of merchandise and marketing at Clicks, said that the outlook for the retail environment remained challenging.

"We've seen a slowdown in market growth and that's something that we've all got to face in every respect."

It was as much an issue of how the same customers were moving from one mall to another as their total spending potential, he said.

Anson-Esparza said month-ends and paydays were 50% bigger in terms of sales than the middle of the month. As a result, "all retailers are battling it out to the best of our abilities to deliver that value at that payday, month-end and mid-month".

Although Clicks is far bigger than Dis-Chem in terms of store footprint, Abraham said that over the next three years "you are probably looking at low-double digit growth for Clicks" whereas Dis-Chem expects 21% growth.

"And with that growth momentum there's more support around the share price," he said.

Clicks currently has more than 600 stores, with 459 in-store pharmacies.

Asked what changes he had seen since the listing, Saltzman said: "It's made a better business person out of me.

"We look at our metric a lot closer, it's made us more competitive but on a personal note nothing has changed much."

Dis-Chem's share price was R26.10 at the close on the JSE on Friday, a 4.4% gain on the day.

tshandup@sundaytimes.co.za