Pick n pay results released today.photo by Simphiwe Mbokazi 453

Five million active users of Pick n Pay’s Smart Shopper card received combined benefits worth R350 million from the retailer during the 12 months to February. While the total cost of these benefits was not carried by Pick n Pay, the non-recurring set-up costs relating to the card appear to have been a major factor in the group’s weaker-than-expected performance for the year.

The reported 15 percent drop in earnings to 160.78 cents significantly undershot analysts’ consensus figure of unchanged earnings for the full year. The total dividend for the year was down 8.2 percent at 130.85c a share.

At the half-way stage the group had reported a 39 percent collapse in earnings. Analysts were expecting the second-half performance to be sufficiently strong to produce a zero growth in earnings for the full year. As it happened, while there was an improvement, it was not nearly strong enough to neutralise the affect of the torrid first half.

Group turnover was up 8.7 percent in the second half and 8.1 percent for the full year. Trading profit in the second half was up 11.2 percent.

At an upbeat presentation to analysts yesterday, chairman Gareth Ackerman said the company had seen a marked improvement in the second half on the back of steps taken to transform the business. “Our improved performance over the last six months gives us considerable confidence in the work that we have done in repositioning the group for the future,” he said.

Ackerman said that the launch of the Smart Shopper programme had exceeded all projections. Both Ackerman and Richard van Rensburg, the deputy chief executive, denied that the Smart Shopper programme was too generous to be sustained. Ackerman said that while set-up costs had negatively affected earnings, the programme was expected to drive turnover growth in the medium to long-term and “generate additional value through more effective marketing to customers”.

Two of the major challenges for the group during the year were the continued push to implement the centralised distribution strategy and also to reach an agreement with the trade union. In addition, the group is implementing major changes to its buying systems and to its supply chain.

Van Rensburg said that while some progress had been achieved with its newly established “specialist category buying”, “we still have a long way to go to generate the improvements we are targeting and we expect to incur sizeable continued corporate investment costs in the next 18 months.”

Ackerman told the analysts that the new labour agreement with the union, which provided for more flexibility, would enable the company to staff its stores more efficiently and match staff scheduling with peak trading times.

Looking ahead, Ackerman said that although there was still significant work to be done on transforming the business, the company was at the point where the real benefits of the changes implemented so far were starting to be felt.

Alec Abraham, an analyst with Vunani Securities, acknowledged that the results were not as good as expected, but said management was doing all the right things. “It is going to take time, it will not be a two to three year turnaround, it will take four to five years.”

Abraham said the group would continuously see the benefits of the investment and transformation programme, but the costs involved would restrain the improvement at first. He added that the long-term benefits of the Smart Shopper would be considerable.

Shares in Pick n Pay Stores rose 4.49 percent to R44.20, while those in Pick n Pay Holdings rose 3.85 percent to R18.90.