The Dis-Chem pharmacy group reported a decline in its profit despite an 8% increase in revenue, as the company doubled its investments in its internal technology and innovation unit, X, bigly labs, during the first six months leading up to August.
According to interim results published after market close on Thursday, earnings per share fell by 12.8% to 64.3 cents. Revenue increased by 8% to 23 billion rand, but expenses rose by 13.1%, outpacing the 9% growth in total income, which led to a 10.5% decrease in operating profit to 1 billion rand. Furthermore, the interim dividend was cut by 12.9% to 25.62 cents.
The company attributed the rise in costs to the opening of new stores and the activities of X, bigly labs, which it calls the 'engine of Dis-Chem transformation innovation.' It was noted that this unit 'doubled investment costs for the corresponding period.' The exact amount of these expenses in rand units was not disclosed by the company.
A year ago, Dis-Chem reported spending 130 million rand to create its 'integrated healthcare ecosystem' over the six months leading up to August 2025, with 60% of that amount, about 78 million rand, directed to X, bigly labs. Unlike last year, when the company indicated that pre-tax profit in the retail business had grown by 25.8% after excluding ecosystem investments, such a figure is absent in the current report.
The creation of X, bigly labs cost 330 million rand over a year leading up to February 2026, in which year earnings per share fell by 17.1%. CEO Rui Morais wrote in the annual report that measurable returns from these investments are expected to begin demonstrating in the 2027 financial year as the Better Rewards program matures, the new app launches, and the capabilities of X, bigly labs are gradually commercialized.
Two Different Periods
The group stated that it expects a 'more even distribution of profit' between the two halves of the 2027 financial year, as X, bigly labs' costs were higher in the second half of last year. This, according to them, will contribute to 'stronger full-year profit figures.' Dis-Chem also noted that the increase in this unit's costs will slow down as it approaches a 'presumed stable state.' Dis-Chem shares traded down nearly 11% in Johannesburg on Friday morning, reaching levels seen three years ago.
Since the launch of X, bigly labs, Dis-Chem has allocated 240 million rand to overhaul its 'digital asset.' This unit is also responsible for the group's digital ambitions. According to the report, these funds were used to restore the core commercial platform, as well as cataloging, pricing, order fulfillment, and order management systems. The group stated that 'the business now operates on a modern, scalable basis.'
Customers have not yet seen these changes. The first version of the new app was available to 22,000 customers. The second release, intended for a 'wider customer audience,' is scheduled for the last quarter of the 2027 financial year, which runs from December to February. The report does not specify when all customers will gain access to the app.
Timelines have been adjusted. A year ago, Dis-Chem promised a new app by mid-2027 financial year, around August of this year. In September, Yusuf Kaka, head of integrated digital interaction at X, bigly labs, told TechCentral that the target public release date was early 2027. At that time, he stated: 'There was no possibility of saving the existing application.'
Business expansion costs rose by 71% to 492 million rand for the half-year, covering new stores, digital transformation, and IT upgrades in both retail and wholesale businesses. Dis-Chem stated that a similar approach is now being applied to the digitization of pharmacies and clinics. In July, the company acquired the remaining 50% of Health Window, which it claims supports medication adherence, for 125 million rand.
What the Money Buys
The most apparent result so far is the Better Rewards loyalty program, which Dis-Chem relaunched in October 2025 and named one of the first outcomes of this unit's work. The program replaced points with instant discounts at the checkout. Active membership grew by 27%, reaching 8.2 million people, and program members now account for 86.1% of sales, linking most sales to identified customers. In the first year, the program returned 1.5 billion rand in discounts, partially funded by 200 participating brands.
Sales volume achievements were made: sales volume in Dis-Chem's main stores, excluding pharmacies, grew by 5.5% for the year ending September 27, compared to overall market growth of 0.1%, according to NielsenIQ data provided by the group. Meanwhile, prices showed deflation in 45% of sales in main stores. Overall retail margin still increased from 30.8% to 31.7%, which Dis-Chem attributes to more effective promotions, higher gross margins in key categories, and program funding.
The next step will be 'predictive and adaptive offers delivered through X, bigly labs,' following the stabilization of Better Rewards. The unit's models also determine which stores should be renovated first. Dis-Chem reported that two of its new format stores, located in Melrose Arch and Irene Village, have an initial sales density 25% higher than comparable older format new stores.
None of this has stopped the margin decline. Retail operating margin decreased from 4.6% to 4.1%, and retail operating profit fell by 4% to 794 million rand. Dis-Chem's results do not disclose online sales data; over seven weeks before October 19, the group's total revenue grew by 7.9%.
