Boxer Retail Limited (BOX) Earnings Call Transcript & Summary

Good morning, and welcome to our Boxer results presentation covering the 6-month trading period from the 2nd of March to the 30th of August 2026, a period of 26 weeks. I am Marek Masojada, the CEO of Boxer. And with me today is my colleague, our Boxer CFO, David Wayne. And we are presenting to you from the Boxer head office situated here at Westfall in Coseloatel. Today's presentation is made up of 4 parts. Firstly, I will give a high-level overview of the highlights of our performance for the period, followed by David presenting a more detailed look at the financial results. I will then give an update on progress made on some of our strategic initiatives, our plans and our outlook for the second half of the year. And at the end of the session, we will have an opportunity for a Q&A session. We encourage you to send through any questions you have as we go through the presentation using the facility on the webcast broadcast. Our Boxer Investor Relations executive, Stephen Carrott, will accumulate the questions coming through, and David and I wish answer. David and I are pleased to report a satisfactory set of results against the backdrop of a really challenging retail trading environment. The Boxer performance over the period shows the resilience of the business in maintaining positive momentum in turnover growth, financial performance and execution of strategic objectives within an external environment that has offered little assistance. To share some of the highlights of the period. During the first half, we opened 24 new stores, 9 super stores and 15 liquor stores. On the 27th of August, we celebrated the milestone of our 600th store as we opened at Crossing, an 18,000 square meter regional center, serving the community of, which consists of 80,000 households. Our turnover growth for the period was below our internal targets. However, within the context of the deflationary environment, achieving like-for-like volume growth is an important positive indicator. And along with the consistent monthly market share gains throughout the period gives confidence that despite the constrained retail environment, Boxer continues to grow ahead of other players in the market. A key feature of this result has been our ability to grow profitability through careful management of our operational levers. We've developed new revenue streams, carefully managed our gross margin and achieved expense savings to offset the negative impact of the higher energy costs and the sluggish trading environment. Boxer continues to be a significant cash generator, and I'm pleased to report that during the period, we extinguished our long-term debt and ended the half with a positive net interest income and a healthy cash balance. We have made good progress with our strategic initiatives. I shared with you at our year-end and recent AGM updates the details around our TV show, which ran from March through May and represented the launch of our B Media initiatives. The Street Food Cook show received favorable feedback with verifiable returns experienced by our partners. Our B Inside data portal is being well used by our supplier base and continues to grow its subscription base. Our new store opening pipeline for this year, next year and beyond has strengthened. And we have made good progress on our efficiency projects unlocking exponential productivity gains, as we utilize the power of AI to digitize, automate and analyze. And I'm happy to report that we continue to make progress in transformation initiatives reflected in an improvement in our broad-based black economic empowerment scorecard to Level 5. David will talk to our detailed results. So I will call out just 2 key points. Our profit before tax and capital items has grown at a pleasing double-digit 10.6%. And I'm pleased to share that the Board has confirmed an interim dividend of ZAR 0.4993 per share. Focusing in on turnover trends. Our total turnover growth for the period of 6.3% and 1.4% like-for-like growth is below what we've achieved in our recent history and has been under pressure since the latter part of the previous financial year. Box's internal selling price inflation over the past 5 years from FY '22 to '26 has reflected average inflation of 3.3%. This has dropped significantly to deflation over the last 18 months of minus 1.2% for FY '26 and minus 2.4% for the current reporting period. There are 2 positive points to be made, which are reflected in the 2 graphs on the right-hand side of the slide. Our implied like-for-like volumes remain nicely positive, and the contribution to turnover growth of our new stores is holding up well. As mentioned earlier, the Boxer estate at half year cutoff reached a significant milestone of 600. This means that we have doubled the store estate over the past 6.5 years. The 24 stores we opened in the half comprised 9 superstores and 15 liquor stores. 2 of the super sale were pick-and-pay conversions, 1 situated in Fixedburg in the Free State and the other Palm region carting. Both are performing well under the Boxer brand and welcome additions to our state. Our liquor store openings continue to outpace the superstore rollout, as we catch up the gap opportunity. And now we have 64% of our stores having an associated liquor shop, up from 58% a year ago. Our new store openings, particularly within our superstore format are generally weighted towards the second half of the year, as can be seen from the trend in 3 of the past 4 years. We are happy with where we are currently placed with our H2 opening schedule and are confident of achieving our year-end target of 60 across the formats. I'll give a further update on the outlook section on where the numbers stand as of the end of October. I'll now hand over to David for the detailed presentation of our financial results.

Thank you, Marek. I'm pleased to present our financial results for the 26 weeks ended 30th of August 2026. This has been a half in which the macro environment tested the business in ways we have not seen for some time, and I'm pleased with how the Boxer team have responded. Despite the challenges, we have delivered growth in earnings further strengthen the balance sheet and continue to invest in the store base. Turning to the financial highlights. Turnover increased by 6.3% to ZAR 24.1 billion, with a like-for-like growth of 1.4%. As Marek has outlined, this was achieved against internal sold price deflation of 2.4%. So the underlying volume performance remains healthy. Gross profit margin improved by 50 basis points to 20.7%. Trading expenses were 17.6% of turnover, up 60 basis points versus H1 of FY '26. Trading margin increased by 10 basis points to 4.2% and an 8.4% increase in EBITDA to ZAR 1.7 billion, and headline earnings were up 9.1% and to ZAR 565 million. Overall, in the period of modest top line growth by Boxer standards, the business has pulled the levers available to it and delivered earnings growth well ahead of turnover growth. Looking at the key income state drivers behind the results. Trading profit increased by 8.1% to ZAR 1 billion. This was the combined result of gross profit growth of 8.7%. Growth in other trading income of 34.7% and trading expense growth of 10.2%. Put simply, gross profit and other income together grew ahead of our cost base. Other trading income increased to 1.1% of turnover from 0.9%. This was driven by continued growth in value-added services and increased contribution from the B Inside supplier portal and an initial contribution from B Media, which launched earlier in the year. Net finance charges were flat on the prior period at ZAR 232 million, which I will unpack in a moment. As a result, profit before tax and capital items grew ahead of trading profit up 10.6% to ZAR 774 million. Capital items were a small profit of ZAR 3 million compared to a ZAR 20 million loss in the base, which lifted profit before tax growth to 14.3%. The effective tax rate was 27% compared to 26.2% in the base and profit after tax increased by 12.9%. After headline adjustments, headline earnings increased by 9.1% to ZAR 565 million. Gross profit increased from ZAR 4.6 billion to ZAR 5 billion, with gross margin increasing from 20.2% to 20.7%. The waterfall on the right impacts a 50 basis point improvement. We continue to reinvest in customer price in support of the virtuous circle strategy. This price investment reduced our margin by 20 basis points. This was more than offset by gains from margin mix management, economies of scale and improved wastage and shrinkage, which contributed 70 basis points. This is net of the increased diesel spend. As at year-end, I would highlight that being able to invest in price for our customers in a deflationary environment and still report gross margin expansion is a very pleasing outcome. On diesel costs, as a reminder, the supply chain spend sits in the cost of goods sold with a slightly smaller portion in trading expenses, which relates to bakery ovens, generators and forklifts or within the stores. Total diesel spend for the half was ZAR 174 million, up 32.4% on last year, and that's driven by the fuel price. Trading expenses increased by 10.2% to ZAR 4.2 billion. The growth in cost was primarily driven by the store rollout, this together with energy costs and increased advertising spend. Employee costs increased by 9.1%, driven by employee growth with the larger store base as well as above-inflation wage increases. Occupancy costs increased by 7.3%, reflecting annual lease escalations, the store rollout and higher security costs. These increases were offset by improved insurance premiums. Operations costs increased by 12%, driven primarily by energy costs. Merchandise and admin costs increased by 14.2%, driven by increased advertising expenditure relating to promotions in the B Media and Yama Battle television program. I would note that the costs are matched by income generated through B Media, which is reflected in the growth in other trading income. In a period of slower turnover growth, disciplined expense control was a key lever in H1, and it will be given even greater focus in H2. As I promised at year-end, the ongoing listed entity costs and the IPO emission award are now fully in the base, and there are no such items to call out this half. Net finance charges were effectively flat, up 0.4% to ZAR 232 million. At year-end, I signaled that following the degearing of the balance sheet, we expect it to return to a net interest income position in FY '27. This has played out. Net funding interest moved from a ZAR 2 million net expense in H1 of FY '26 to ZAR 30 million of net interest income in H1 of FY '27, a ZAR 32 million swing. This is due to the settling of the long-term debt and higher average cash balances throughout the period. This was offset by lease liability interest, which increased by 14.4% to ZAR 262 million. This was driven by store openings and lease renewals together with the mechanics of IFRS 16 under which lease interest is front-loaded on the commencement of new leases. Turning to the balance sheet. We closed the half with cash of ZAR 2 billion and no long-term bank debt. Net cash, excluding lease liabilities stood at ZAR 2.3 billion compared to ZAR 709 million at year-end and ZAR 1.1 billion a year ago. When lease liabilities of ZAR 5.4 billion are included, net debt was ZAR 3.1 billion. I would note that the net cash position at half year includes the benefit of seasonal working capital release, which I'll come to on the next slide. As before, the amount owed by Pick n Pay relates to overnight card acquiring settlements arising from a shared payment system infrastructure, and this forms part of our normal day-to-day cash flow management. Net working capital remained negative at ZAR 1.7 billion compared to negative ZAR 1.8 billion in H1 of FY '26. Inventory of ZAR 4.4 billion is up 16% year-on-year, but only 2.6% versus the February year-end. The year-on-year increase reflects the same factors we discussed in the FY '26 results being strategic buy-ins, investment in new and existing stores and the incremental inventory associated with the Tonga DC. Trade and other payables increased by 7.6% year-on-year, broadly in line with the growth in cost of goods sold. As a reminder, Boxer has no bona-fide trade receivables. The chart on the bottom left shows a consistent seasonal pattern Working capital releases liquidity in the first half and absorbs it in the second half. H1 of FY '27 followed that pattern with a ZAR 1.3 billion release. Part of the release is also due to payables timing difference at period end, with trade payables up 25.2% versus year-end. Consistent with prior years, we expect the majority of the release to unwind in H2. Boxer incurred total capital expenditure of ZAR 320 million during the half, 40% lower than the ZAR 539 million in H1 of FY '26. The reduction is primarily due to the non-repeat of the ZAR 115 million supply chain investment in the fit-out and equipment of Tonga D.C. Expansion CapEx of ZAR 177 million accounted for 55% of the total spend with maintenance CapEx of ZAR 143 million, broadly flat on the prior year. Store CapEx of ZAR 225 million was 29% lower than H1 FY '26. The variance is primarily a function of the project timing and portfolio mix. That is the phasing of store openings and refurbishments across the year and the mix of formats within them rather than any change in our investment appetite. As Marek has shown, store openings are weighted to the second half and store CapEx will follow the same pattern. IT and other CapEx of ZAR 88 million continues to support the ongoing health and stability of the business. Boxer generated ZAR 2 billion of free cash flow during the half. This is after both maintenance and expansion CapEx and after ZAR 85 million of share repurchases related to the long-term incentive scheme. Cash flow from operations after lease payments was ZAR 1.2 billion, supplemented with ZAR 24 million of net interest received and the ZAR 1.3 billion working capital release. As I noted a moment ago, the working capital release is seasonal. Excluding the working capital movement, free cash flow was approximately ZAR 750 million, which is more representative of the underlying cash generation in the half. I would expect a materially lower free cash flow number in H2 as working capital normalizes and CapEx steps up with the store rollout. Finally, bringing it all together on headline earnings per share, profit before tax and capital items increased by 10.6% to ZAR 774 million. Profit after tax increased by 12.9%, benefiting from the small capital profit this half versus a loss in the base and an effective tax rate of 27%. After adjusting for the ZAR 2 million of post-tax capital profits, compared to ZAR 16 million of capital losses added back in H1 of FY '26, headline earnings increased by 9.1% to ZAR 565 million. The weighted average number of shares in issue was stable at 452.6 million, marginally down on the prior period as a result of the treasury shares acquired for the incentive scheme. Accordingly, HEPS increased by 9.2% to ZAR 1.2483 per share. At year-end, I said that with the IPO dilution fully reflected in the base future per share earnings growth would more closely align to absolute earnings growth. This half is a first clean comparison, and that is exactly what you see, a 9.1% growth in headline earnings and a 9.2% growth in the HEPS. I'm happy, and I'm sure you are too, that the distorting IPO impacts are now behind us. The ongoing costs of being a listed entity in the IPO award are in the base. The long-term debt taken on ahead of the IPO has been fully repaid, and the weighted average number of shares has stabilized. In closing, thank you for your time and attention. I'll now hand back to Marek to take you through the strategic outlook.

Thank you, David. Turning now and looking forward at how we see things for the second half of the year. Macro factors will continue to heavily influence the trading environment, and the most notable of these are the inflation, deflation outlook. The impact of high energy and transport costs on the consumer and on our business and the level of trading disruptions as we approach the elections in November. Looking back over the past 16 years, food and nonalcoholic beverage inflation in South Africa has averaged at 6.2%. As can be seen in the left-hand graph, July and August were the lowest recorded over that period at 0.9% and 1.1%, respectively. The right-hand graph reflects our Boxer internal selling price over the past 2.5 years. Due to our high exposure to commodities, as well as giving deeper value to customers through promotional offerings, Boxer has since April 2025, been experiencing negative deflation, which has deepened over the current reporting period with the lowest point being August 2026 at minus 3.1%. This has been a highly unusual phenomenon in retail. It's been very good for our Boxer customers who have got more value for their rand, but challenging for the Boxer team to convert this extra volume growth into rand growth. An analysis of our basket pricing shows that we are starting to annualize again, some of the prior year lower pricing, whilst also seeing some price inflation coming through from the impact of the higher fuel costs, exchange rates and other influencers. To illustrate this practically, we show the history of selling prices of key basic commodities of rice, flour and maize over the past 22 months. Rice in January of 2026 was selling at 28% below the prior year and has remained substantially below last year's levels right through until August of this year. Maize in January 2026 was selling at 29% below the prior year. And as of October, it's now at 16% below the prior year. And flour, which was 17% below the prior year in January, as of October has now annualized and was the same as the prior year pricing. The above pricing trends suggest that we are likely reaching the bottom of the deflation cycle. Our Boxer virtuous circle continues to be our North Star with the 5 pillars challenging us to improve and drive our model forward. In this low growth environment, we are highly focused on solidifying our new store expansion pipeline to secure future growth and efficiencies through our centralized infrastructure, innovating to create new income opportunities and driving costs down through efficiency and technology, all to support the main business engines of driving value and volume. Our future store pipeline has strengthened over the year, and we have already identified and approved sites to keep our superstore expansion on track for at least the next 6 years. Each project follows a defined life cycle, and we are confident that our sites for FY '28 are secured and that there are no constraints to our future expansion ambitions. Our liquor license approval process has made good progress in shortening time lines, and the future rollout has become more predictable. Our innovation hub continues to mature and expand, as we progress our journey to give more value to both customers and our suppliers. We have now reached 3 million B Rewards members and recently launched our Boxer Baby Club, giving added value benefit to young families. Our B Inside platform has been enhanced to offer AI capabilities for users to apply to the retail data. And as mentioned earlier, B Media has launched, and moving forward with in-store media, shop attainment offerings and the go-live of our Boxer customer data platform, which will house a golden record of customer activities. This morning, the Boxer Board released announcing that in line with the succession planning timetable puts in place at the time of our IPO that I will be retiring from the position of CEO at the end of this financial year. I have spent 33 years at Boxer and has been a great privilege to have been part of this incredible team and the journey of growth and success. I'm extremely happy to announce today that the Boxer Board has appointed Justin, our current Boxer Group Executive for Supply Chain as CEO designate with immediate effect. Justin is a 43-year-old chartered accountant and has a 17-year association with Boxer, 3 years working on our external audit team and 14 years within Boxer. Justin joined us in 2012 and has gained extensive experience across Boxer, having worked in our finance, store operations and most notably, he spent the last 9 years setting up from scratch and building our extensive and highly efficient, supply chain network. Justin and I traveled together to Poland in 2016 to get exposure to large-scale international discount retailing. And it is there that we learned many of the concepts that exists in our business today with many of those within the supply chain network. Justin has the full support of the Boxer executive, and I'm excited to see the new generation of leadership that's coming through. Congratulations, Justin. This is a proud moment for the entire Boxer team. Justin and I, along with the Boxer Group Executive will be working together over the next 5 months to ensure a smooth transition with Justin formally taking over the CEO role on the 1st of March 2027. I will be remaining with Boxer through to November '27 in a supportive role. To conclude some comments on our outlook for the full year to February 2027. We are expecting to see higher sales growth in the second half of the year. Our turnover growth for the month of September was slightly above the H1 reported result for both total turnover and like-for-like. The Black Friday and festive season numbers in our base were relatively soft last year. The new store openings in H2 will make an increased contribution compared to H1, and there are signs that deflation should ease towards the end of the financial year. My caution is that trading visibility is low because of the significant macro risks. We are confident of reaching our 60-store target made up of 25 superstores and 35 liquor stores. To give an update on the current numbers, in September, we opened 9 stores and closed 1 build taking our net openings for the year to 32. For the month of October, we have a further 9 store openings confirmed. Our CapEx guidance remains at ZAR 1.1 billion, in line with our goal of achieving our store openings. On trading margin, our goal will be to keep trading margins similar to last year, and we will use every controllable lever to manage our way through the uncertainties and the impact of higher energy prices, high levels of promotional competitiveness in the market and a highly constrained consumer. We remain confident in the resilience of the Boxer model and the trust that consumers have in finding continuous value in our Boxer promotions. Finally, I would like to offer my thanks to the staff of Boxer across South Africa and for their continued strength and dedication to the company. This has been an extremely challenging trading period, and it is only through your combined efforts that we have navigated this successfully. Thank you. We now move to our Q&A section. I'll hand over to Stephen, who will read out the questions that we've received. Stephen?

Thank you, Marek. The first question is from of Citi Group. Well, done on your results. My questions are the following. Can you share some color on the impact of March and March on your Boxer stores? Did you see an uplift in trade as a result of these events? Secondly, do you think you will revise the margin targets higher for FY '27, full year and beyond? This is the third question, when do you think inflation turns positive?

Thank you, Sa'ad. Yes, I think looking back at the first half of this year and the significant activity that was going on in the lead up to the end of June, I think the way we look at it, it was definitely a net negative for us. Our stores across South Africa did suffer closures from security threats and so on. Some lasted a short time and others longer, but it was a period of disruption, I think, for all of South African retail. Regarding the question on margin, and will it be higher for FY '27, I think core to our discount model is that we would prefer to keep our trading margin constant or even slightly downwards and drive the top line. I think that circumstances have been limited in the present environment, but we definitely would like to -- and I think the guidance given is that we'll be aiming to keep our margins at similar levels to last year. And I think regarding your inflation question, I think we showed some of the history against our key commodities. Our internal view is that we are getting to the end of the deflation cycle, and our best estimates at the moment is that we'll probably turn into positive inflation somewhere during the first half of the FY '27 calendar year. Thank you.

Thanks, Marek. The second question is from Shamil Ismail of Premium Research. Congratulations on your results. What is management's targets for other income as a percentage of sales, especially for B Inside data and B Media?

Okay. Thank you for the question, Shamil. Just on the guidance, unfortunately, we don't publish that sort of guidance at this stage, but we do feel we have a significant runway for the other trading income at the moment.

Thanks, David. We have a question from Michal de Nobrega from Avior Capital Markets. Well done on the results, and thank you for the opportunity to ask questions. On the group's gross profit margin, could we please get some more color around the margin mix management? And do you expect this is sustainable even if inflation started picking up?

All right. Thank you, Michael. Just on that, we won't discuss what makes up our margin mix management. But just on the inflation side is that when inflation starts to pick up, we do see it slightly easier for us to maintain our margin as we can buy ahead of the price increases and keep prices lower for longer for our consumers.

We have another question from Michael the group holds ZAR 2 billion in cash. Could we please get your thoughts on any plans or investments that you expect to make over the next year? And what are the group's thoughts on increasing the dividend payout ratio?

Yes, very happy with the cash accumulated during H1. We do go through a working capital cycle in the second half that is a negative. Regarding future investments, obviously, we've got a significant rollout plan, and we will spend the majority of our CapEx this year in the second half. Looking beyond that, I think our primary drive is the expansion of the group as a whole in terms of our existing format. So primarily, our CapEx will be deployed expanding the core elements of the group and also the associated services and technology that are required to keep the business efficient. So still very much in our core business. I'll hand to David on the dividend question.

No, I think, like Marek said, we are cash generative in H1. And we liquefy in H2. So the Board will feel that it's at year-end is the most appropriate time for us to assess the dividend payout ratio, and we will come back to you on that at that time.

Thank you. We then have a set of questions from Austin of Excelsior Capital. I'll just read it through all of them, and then, you can answer as appropriate. Could I get your opinion on the state of the industry? We've seen food inflation not come through as anticipated. Do you anticipate a meaningful change in food inflation with El Nino coming? Do you anticipate higher for longer diesel prices and difficulties procuring diesel? Do you anticipate the need to diversify your revenue stream perhaps into other formats such as clothing retail, et cetera?

Thanks, Austin. I mean just to take those 1 at a time, the state of the industry. I think it's well known that retail across all the elements has really been under pressure for some time. I think it covers both the food sector as well as clothing and other sectors as well. We've obviously got a highly constrained consumer at the moment to bearing the brunt of increased transport costs and that's reducing the available spend. Regarding the change in food inflation with El Nino, I mean, I think, our guess is as good as anybody as to what the exact impact of that is going to be. We're certainly in deep conversations with our supplier base to make sure that we are as prepared as we can to deal with any shortages related to El Nino. Regarding diesel prices, I must say the trend of diesel pricing over this past 6 months has been incredibly unwelcome. We have many direct costs within our business that are directly related to the diesel price, and it's been very punitive having to manage that over the half. I think the -- we are unfortunately expecting these higher prices to continue, and we've seen indications that there possibly increases coming next month. We haven't really experienced shortages in diesel, but certainly, we'll be doing contingency planning to make sure that we are in a sustainable position. And then I think your last question was on diversification into other areas, and it's very much focusing on our core business at the moment and clearly developing other income streams that are in line with our core and which feed off our core. I think we have some opportunity, as we've mentioned during the course of the presentation to accelerate some of those endeavors.

We have a raft of questions through from Michael Jacks of Bank of America. Many of them have already been addressed. So I'll put this 1 to you. Are you seeing any inflationary price increases coming through from your suppliers yet?