Pick n Pay’s dire picture of operating conditions in SA sinks its shares 9%

Group turnover increased by 8.9%, boosted by the performance of Boxer, whose sales growth in South Africa was up 20.2%. Photo: Supplied

Group turnover increased by 8.9%, boosted by the performance of Boxer, whose sales growth in South Africa was up 20.2%. Photo: Supplied

Published May 5, 2023

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Pick n Pay’s shares ended the day 9% lower as the market digested the worrying picture the retailer portrayed of operating in South Africa and the increased hardships and reality of running a massive consumer-based business amid the worst energy crisis the country has faced.

However, the group said yesterday that despite spending nearly half a billion rand on diesel to run generators, it had delivered an encouraging performance in the second half of the trading year.

The share closed 9.16% lower at R37.39 on the JSE yesterday.

In its results for the 52 weeks ended February 26, 2023, the retailer said that given high inflationary pressures, exacerbated by load shedding, it was pleased to have exercised good cost discipline in its operations throughout the year.

It spent R522 million in total on diesel and a net amount of R430m considering electricity savings.

“Taking into account the additional costs required to run diesel generators, the group’s underlying earnings were ahead of the broadly flat guidance communicated by the group to the market earlier in the year,” it said.

Underlying profit before tax reached about R2.1 billion, a 7% increase year-on-year.

The group reported that pro forma headline earnings per share (Heps), was 16.3% lower this period at 242.37 cents, down from 289.64c.

It declared a total dividend of 185.15c per share for the year, down 16.3% from 221.15c the year before due to the company wanting to support its Ekuseni strategy plan, which was launched in May 2022.

Pick n Pay CEO Pieter Boone said: “Like everyone in South Africa, we have had to manage substantial inflationary cost pressures, exacerbated by an unprecedented worsening of load shedding."

Group turnover increased by 8.9%, boosted by the performance of Boxer, whose sales growth in South Africa was up 20.2%.

"Boxer opened 60 new stores in the year, and is on track to deliver its target of opening 200 stores, and doubling sales, by the 2025 financial year," the group said.

Sales growth from Pick n Pay South Africa was 4.3%.

"Sales were impacted by some disruption in stores as the group began to implement its new customer value proposition (CVP)," the group said.

Boone said despite pressures the company had faced, the group achieved three very important steps.

“First, we kept our eye on the ball and contained our costs very well. Restricting like-for-like cost growth to just 5.6% in Pick n Pay South Africa, despite significant additional costs from load shedding, was a major achievement.

“Secondly, our cost discipline enabled us to keep our price increases well below CPI food. I know this is important for every family in this country, and our commitment is that we will continue to do everything we can to keep prices down in the coming year.

“Thirdly, despite the external headwinds, we nonetheless developed, launched and implemented our Ekuseni strategic plan.

He said Ekuseni was the right plan for Pick n Pay and the right plan for South Africa.

"We are rejuvenating our PnP brand into PnP and PnP QualiSave to better serve customers with a more tailored Customer Value Proposition. We are accelerating our Boxer and Clothing growth engines to give customers greater access to these winning brands. Our omnichannel and digital offerings are delighting more customers, and will provide a strong runway for growth in the coming years," Boone said.

The group said it was pleased with the launch of Pick n Pay QualiSave – a new brand in the market, now comprising 118 stores, representing a strategic move to dedicate specific focus to serving a growing number of customers seeking exceptional value at the middle to lower end of the market.

This strategy included a full conversion of 131 Pick n Pay and QualiSave stores to their new CVPs to differentiate the two store banners and improve the customer experience.

"Fully converted stores have achieved an uplift of more than 10% in sales growth post-conversion, well ahead of the 4.3% Pick n Pay South Africa growth," the retailer said.

Pick n Pay Clothing achieved 15.3% sales growth from standalone stores. The group opened 58 new clothing stores, more than double the number in the 2022 financial year.

Pick n Pay said it was very encouraged by online sales growth of 72%, with on-demand sales growth of well more than 100%.

"This was driven both by asap! and the new Pick n Pay offer on Mr. D, in partnership with Takelot, which was launched in October 2022," it said.

Looking ahead, Boone said: “It is going to be another tough year. But I have every confidence in our plan (Ekuseni), and in the ability of our teams to deliver it”.

Anchor Capital investment analyst Zinhle Mayekiso said: "Pick n Pay’s FY23 (financial year) operational performance was a tale of two halves. Its second-half performance was negatively affected by load-shedding effects in the form of increased energy costs and store disruptions.

"The retail sector in South Africa is currently navigating a tough economic environment and is also having to contend with increased energy costs due to elevated load-shedding levels. The combination of these headwinds is weighing on profitability, which has resulted in weakened share price performances from most retail counters on the JSE."

Mayekiso said the Pick n Pay’s strategy was a step in the right direction in improving Pick n Pay’s competitive positioning in South Africa’s food retail landscape.

"Having a more targeted retail offering to different consumer demographics in South Africa is starting to yield some green shoots for Pick n Pay but the implementation of the Ekuseni strategy is still ongoing," she said.

Magnus Heystek, a director of Brenthurst Wealth Management, tweeted: “Competition Board accused retailers of profiteering, not understanding how markets work. PnP’s results the reality for business in SA. Pick n Pay misses dividend estimates as power costs increase.”

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