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Pepkor lifts sales steadily amid hurdle of disruption in SRD grants and KZN floods

Looking ahead, Pepkor, the owner of Pep, forecast higher levels of inflation for the summer season starting in August and said the group's merchandise teams continued to focus on supporting customers by minimising price increases while maintaining gross margins. Photo: Jack Lestrade

Looking ahead, Pepkor, the owner of Pep, forecast higher levels of inflation for the summer season starting in August and said the group's merchandise teams continued to focus on supporting customers by minimising price increases while maintaining gross margins. Photo: Jack Lestrade

Published Jul 29, 2022

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Budget retail operator Pepkor said yesterday that its performance during the third quarter and nine-month period was “encouraging” as its sales had increased steadily off a low base, amid several challenges such as the disruption in the payment of Social Relief of Distress (SRD) grants and the floods in KwaZulu-Natal.

It also warned that against the backdrop of continued inflation and interest rate hikes, consumer affordability remained under pressure as the cost of living continued to rise.

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Pepkor’s shares were up 1.86 percent at R20.25 in intraday trade.

“It is pleasing that this has been resolved with payments to beneficiaries resumed, including back payments, for the months of May 2022 and June 2022.”

Revenue from clothing and general merchandise rose 9.7 percent in the third quarter and 6.5 percent in the nine-month period. For the third quarter, sales in Pep and Ackermans increased by 1.7 percent, while like-for-like sales were flat. For the nine-month period ended June 2022, total sales increased by 2.8 percent.

“Overall, trading during the third quarter was volatile and included very strong trading in April 2022, a soft May 2022 followed by a decent recovery in trading during the second half of June 2022. This recovery strengthened further into July 2022,” Pepkor said.

Group revenue for the nine months ended June 30 (nine-month period) rose by 3.9 percent to R62.5 billion with its third-quarter performance hit by the non-payment of the SRD grant in May and June.

In the third-quarter trading in Pep, the group said it was hit by the flooding of its Isipingo distribution centre during the KwaZulu-Natal floods in April.

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Its sales performance in Pep was knocked by this event.

“A substantial amount of recovery, refurbishment and replacement work has been completed and the distribution centre is currently operating at 50 percent of normal capacity. This is expected to increase to 80 percent within the next month and service levels are almost back to normal,” it said, adding that the total damage to merchandise, infrastructure and disruption of operations was estimated to exceed R1 billion.

However, it noted that the damage was covered by its insurance cover for material damage and business interruption, with an interim payment expected before the end of September.

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Meanwhile, furniture, appliances and electronics revenue rose 3.7 percent in the third quarter and 7.2 percent in the nine-month period. JD Group increased sales for the third quarter by 2.8 percent with like-for-like sales growth of 1.2 percent. For the nine-month period, total sales increased by 6.5 percent.

Pep Africa reported subdued sales growth in constant currency terms as the economies in countries of operation had been slower to recover following the Covid-19 pandemic. Constant currency sales increased by 3.7 percent and like-for-like sales increased by 5.7 percent for the nine-month period.

Looking at its recently international buy, Pepkor said the Grupo Avenida business in Brazil, which was acquired in February, “performed very well” during the third quarter.

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Its sales had increased by 51.6 percent in constant currency terms. In South African rand terms, third-quarter sales growth amounted to 80.9 percent supported by the strengthening of the Brazilian real.

“It is expected that Avenida will contribute 2 percent to group revenue in the current financial year and 4 percent in the next financial year on a full-year basis,” Pepkor said.

Performance in Avenida was underpinned by the recapitalisation of the business in February, which “substantially” improved stock holding, which resulted in better trading densities.

The comparable quarter last year was negatively impacted to some extent by Covid-19 and represented a slightly softer base. Two new stores had been opened to date, resulting in a total retail footprint of 132 stores.

“Pepkor’s strategy to offer affordable and accessible products that serve the basic needs of customers is well positioned against this persistently tough consumer and macro-economic environment. The resilience of the South African economy and the consumer continues to impress, despite the prevailing global and local macro-economic conditions,” it said.

Trading during July was very strong and exceeded expectations, despite the lower base in the prior year, which had been negatively impacted by the civil unrest in July 2021.

Group sales for July rose by 13.8 percent year-on-year (excluding Avenida) and sales in the clothing and general merchandise segment increased by 20.3 percent (excluding Avenida).

Looking ahead, Pepkor forecast higher levels of inflation for the summer season starting in August and said the group's merchandise teams continued to focus on supporting customers by minimising price increases while maintaining gross margins.

Despite the rough macro climate, its plans remained on track to open more than 300 new stores in the current financial year.

This as during the nine-month period the group opened 227 new stores and expanded its retail footprint to 5 772 stores - taking stores closer to customers in line with Pepkor’s organic growth strategy.

BUSINESS REPORT

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