Pick n Pay on the road to recovery

South African retail giant Pick n Pay Stores has released interim results for the period ending 1 September 2013.

The results are a substantial improvement on the annual results reported in February this year. The group was facing a number of challenges including a gloomy economic growth outlook, increased competition and high levels of household cost inflation. HEPS fell 31%, cash generation was poor and there was a 36% decrease in the final dividend from 84cps to 69.25cps. Pick n Pay did open 107 stores however, compared with 44 highlighted in this period.

The African division has seen noticeable growth while battling with other South African retail giants like Shoprite Holdings. The company’s footprint is substantial with operations in Namibia, Lesotho, Swaziland, Mozambique, Mauritius, Botswana, Zimbabwe and Zambia. The majority of Pick n Pay’s revenue however, is still generated in South Africa (96% of overall revenue) whereas Shoprite’s local operation is around 75%. Both management teams highlight the importance of growth in Africa and the allure of a growing middle class income group and an increase in demand for diversity.

Competition is fierce with Shoprite recently cleared of claims that it threatened to blacklist suppliers who dealt with its rival Pick n Pay in Zambia. Operating across Africa is not all plain sailing, especially when we consider some of the labour issues present in some countries and the regulatory hurdles that need to be overcome. A good case and point is that of Shoprite’s move to dismiss 3000 employees following illegal strike action in Zambia. Despite being within their legal rights to do so, the Zambian government stepped in and threatened to revoke the company’s trading license stating that the retailer should pay more than the required minimum wage (as they are a foreign investor thus required to pay a premium in-line with the wages offered to civil servants)

On a local front, Pick n Pay faces fierce competition from Woolworths and Shoprite for the largest market share. Shoprite has been changing its strategy by targeting a higher income groups and is encroaching on the territory of its rivals.

Despite the challenges, Pick n Pay does appear to be on the road to recovery as management has made good progress across the supply chain, resulting in an enhanced product range, improved stock availability and better quality fresh produce. The group remains focused on their core South African business, while continuing to look for profitable and sustainable growth opportunities across Africa.

- Total group till sales (owned and franchise stores) up 8.1%.

- Customer count up 3.3%.

- Opened 44 new stores across all formats during the period.

- Turnover up 7.5% to R30.1bn (2012: R28bn).

- Gross profit at R5,457m showed a 0.4 percentage point improvement in margin at 18.1% of turnover.

- Headline earnings per share (HEPS) up 13.6%, from 35.91 to 40.81 cents.

- Interim dividend of 14.80 cents, up 0.3% on the previous year.

Source: SENS

Pick n Pay - 22 October

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