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JOHANNESBURG - Steinhoff subsidiary Pepkor fell 5.81percent in early trade on the JSE despite the retailer reporting a 25.2percent increase in operating profit before capital items to R3.4billion for the six months to end March.

Pepkor, which is 71percent owned by troubled retailer Steinhoff International, said the results came on the back of a struggling economy characterised by pressured consumer spending.

However, the group said its defensive market strategy and affordable prices proved resilient in driving sales growth, protecting margins and delivering respectable growth in earnings.

It said revenue increased 7percent to R35.3billion while operating profit rose 6.9percent on a comparable basis to R3.4bn. Pepkor grew retail store footprint to 5332 stores, including 164 new stores opened during the period.

The group, which owns brands like Pep, Ackermans and Pep Africa, as well as speciality divisions and JD Group, said the challenging conditions within the discount and retail sectors in its home market of South Africa weighed heavily on sales growth.

“By Pepkor standards the sales growth achieved by many of its retail brands in its clothing and general merchandise segment were lower than expected but the group grew its market share,” the group said. Revenue in discount and retail brands grew by 5.2percent to R23.1bn and operating profit increased by 6.6percent to R3.1bn. The segment contributed 66percent of group total revenue. The retail brands within this segment opened 136 new stores during the period, resulting in a total of 4310 stores. PEP Africa reported like-for-like sales growth of 10.8percent.

It said currency devaluations in Angola and Zambia resulted in a sales decline of 3.4percent in actual exchange rate terms.

The speciality division reported sales growth of 9.4percent and the total store footprint across five retail brands was expanded to 939 stores, with 47 new store openings. Chief executive Leon Lourens says the footwear businesses were most affected by the economy.

“Footwear is a relatively higher-priced product which is easily deferred during difficult economic conditions,” Lourens said. “But against this background, Tekkie Town and Shoe City performed well and Tekkie Town, now with more than 400 stores, continues to grow and expand while key projects are under way to enhance its supply chain and stock management ability.”

Lourens said the group remained positive about its growth prospects because of its discount and value positioning. He said management was cautiously optimistic about the retail environment and expected some improved consumer confidence in 2019.

“Our businesses are focused on delivering variety, affordability and accessibility,” Lourens said.

Pepkor closed 2.15 percent lower at R17.32.