Johannesburg - Pick n Pay Stores fell the most in five
months after South Africa’s second-biggest supermarket chain missed
expectations for full-year earnings and as struggling consumers seek cheaper
food.
Earnings excluding one-time items climbed 17 percent to R2.58
per share in the 12 months ending Febuary 26, the Cape Town-based company said
in a statement on Wednesday. That compared with a median estimate of 14
analysts of R2.67. Sales rose 7 percent to R77.5 billion.
“At all income levels, people are finding it harder to
make ends meet -- they are demanding consistently lower prices and better
value,” Pick n Pay CEO Richard Brasher said in a statement. “In our low-growth
economy, competition for the hard-pressed customer is going to be the new
normal.”
South African shopping chains have sought ways
to attract customers with limited spending money as a 2016 slowdown in
economic growth hurt household incomes. Shoprite Holdings, Africa’s
biggest food retailer with a focus on low-income customers, may be better
placed to benefit from cash-strapped consumers “trading down,” said Sasha
Naryshkine, an analyst at Johannesburg-based money manager Vestact. For its
part, Pick n Pay announced in March a R500 million investment in lower prices.
“The expectations for Pick n Pay were very high, with
anticipation it would capture market share,” Naryshkine said. “Shoprite is
a leaner, meaner beast and I think that is where the growth is going to come
from.”
The shares fell as much as 6 percent, the biggest drop
since November 11, and traded 3.2 percent lower at R62.46 as of 12:21 p.m.
in Johannesburg. Pick n Pay trades at 25.87 times earnings, compared with
Shoprite at 21.10 times earnings.
Read also: Pick n Pay boosts earnings 18 percent
“Despite all the good work Pick n Pay has done over the
last four years, should it be trading at this multiple relative to Shoprite?”
Naryshkine said.
South Africa’s economy last year expanded at the slowest
pace since a 2009 recession, as food costs surged following the worst drought
since at least 1904 and as commodity prices slumped. Shoppers have been hurt by
an inflation rate of more than 6 percent, compounded by unemployment of 27
percent.