Shufersal Exits Tel Aviv 35 Index After 17 Years Amid Financial Woes

Shufersal, a major Israeli retail chain, will be removed from the Tel Aviv 35 index after 17 years, following a significant drop in its stock value. The company's share price has fallen by 17% since the release of its first-half financial reports, which showed a 13.8% decrease in net profit to NIS 299 million. This exclusion from the main index is expected to impact demand for its shares and reduce their liquidity, as exchange-traded funds tracking the index will no longer hold them. The move also diminishes the company's prestige among investors and reduces its exposure to foreign investors who tend to focus on the top-tier index stocks, potentially leading to further downward pressure on the share price.

The decline in net profit occurred alongside a nearly 2% drop in sales for the first half of the year, totaling NIS 7.1 billion. Sales at comparable stores, open for at least a year, saw a sharper decline of 2.7%. In contrast, competitors Rami Levy and Yohananof reported increases in comparable store sales of 3.6% and 6.3%, respectively. Shufersal's gross profit decreased at a slower rate than sales, maintaining a gross profit margin of approximately 30%, similar to the previous year's 29.9%.

Last month, Migdal Insurance ceased to be a significant shareholder in Shufersal, selling shares worth about NIS 125 million over three months. Prior to these sales, Migdal held a 6.2% stake, valued at approximately NIS 600 million, through its mutual funds and profit-sharing policies.

These poor results come about two and a half years after brothers Yossi and Shlomi Amir acquired control of Shufersal for NIS 1.5 billion, representing a company valuation of NIS 6 billion. Initially, the Amir brothers implemented an efficiency plan involving staff reductions, termination of external consultant agreements, office closures, and reduced discounts, while also increasing consumer prices and pressuring suppliers for better terms. They also addressed a debt of around NIS 2 billion, reducing high financing expenses. These measures initially led to a NIS 1 billion annual sales loss but resulted in significant improvements in profitability and net profit, allowing for dividend payouts totaling approximately NIS 1.3 billion.

However, the recent financial reports indicate that the downturn has now affected profitability and net profit. To address this, the Amir brothers must contend with customer attrition to competitors like Osher Ad, Yohananof, and Rami Levy. The challenge extends to urban centers, where Carrefour Israel, led by its new CEO Inbal Harson and preparing for an IPO, poses a significant threat to Shufersal's "Shufersal Sheli" sub-brand.