Pepkor’s interim profit takes strain with consumers under pressure, load shedding

A Pep store in Canal Walk, Cape Town. Photo: Supplied

A Pep store in Canal Walk, Cape Town. Photo: Supplied

Published May 31, 2023


JSE-listed Pepkor said yesterday that its interim performance was knocked by load shedding with its core customer base under financial pressure amid a weak economy.

Customers in South Africa, with an unemployment rate of 32.9%, have less discretionary income to spend with the main spend on food and basic items, such as transport.

Pepkor CEO Pieter Erasmus said: “Factors such as high levels of unemployment, rising inflation, and disruptions in social grant payments have negatively impacted our customers’ ability to earn an income, and they are telling us that they are compelled to prioritise their spending on essential items.

“The situation has been further exacerbated by electricity load shedding, which sees many customers not able to earn a full wage. Their shopping patterns are also disrupted as they have to travel further to shopping complexes which can operate during load shedding - resulting in increased spending on transport.”

Erasmus said to respond to this environment they were looking at the affordability of their products and keeping costs contained.

In its interim results for the six months ended March 31, 2023, released yesterday, the group, which owns household brands including Pep, Ackermans, Tekkie Town, and The Building Company, said its revenue increased by 4% to R43.8 billion, but saw operating profit decrease by 9.8% to R5.1bn.

Headline earnings per share dropped by almost 12%. Like-for-like sales decreased by 2%, weighed down by an 8.3% fall at Ackermans, while Pep grew sales by 0.5%.

The retailer flagged that during the period, intensified electricity load shedding led to a staggering increase of close to 500% in lost trading hours, equating to 211 000 hours. In addition, diesel costs increased by 142% to R72 million for the period.

“The group continued to implement initiatives to mitigate the impact of outages, increasing the proportion of the group’s store base with alternative power sources to 74%.

“Pepkor launched a 5.9-megawatt peak solar generation project which will be phased in over the next two years, covering eight distribution centres and four office complexes. The group also installed four generators as its Pepclo manufacturing operations in Parow, which enables operations to continue during load shedding," it said.

The group said performance in Ackermans was negatively impacted by the suboptimal merchandise mix in its summer 2022 range.

“Corrective action was implemented within the confines of product lead times, and improved performance should be visible towards the end of winter and in summer 2023,” it said.

Pepkor said during the second quarter, market share gains were achieved in key product categories.

“Pep increased market share in the babies, ladies, and home product categories, while Ackermans gained market share in schoolwear and lingerie. JD Group gained market share in computing, appliances, and audio. It is pleasing that the group’s total share of the South African clothing market continues to exceed pre-Covid-19 levels,” the group said.

The group opened 168 new stores, 99 on a net basis, during the period, expanding the group’s retail store base to 5 929 stores.

Looking ahead, the group said trading in April was weak, but improved in May 2023.

“It is, however, not expected that the operating and consumer environment would improve any time soon.

“Management’s focus remains on ensuring the group’s discount and value offerings meet changing customer needs. Value creation plans have been formulated and are in the process of being executed,” it said.

By 5.20pm yesterday the shares were 10.69% lower at R13.54.