Pick n Pay share price: sales update and recapitalisation plan

Key takeaways

1. Sales Growth and Performance: Pick n Pay Stores Limited reported a 5.4% increase in total sales for the 52 weeks ended 25 February 2024.

2. Asset Impairments: The Group's earnings for FY24 have been impacted by a R2.8 billion non-cash asset impairment of Pick n Pay Supermarkets stores.

3. Expected Earnings Loss: For FY24, the Group anticipates a significant loss at the earnings and headline earnings levels, mainly attributable to the Pick n Pay Supermarkets business.

4. Recapitalisation and IPO Plans: Pick n Pay announced a two-step recapitalisation plan comprising a renounceable rights offer of up to R4.0 billion and the subsequent listing of its Boxer business on the Johannesburg Stock Exchange (JSE).

5. Strategic Plan and Outlook: CEO Sean Summers' new strategic plan focuses on turning around the Pick n Pay Supermarkets business while reinforcing high-growth areas, including Boxer, Pick n Pay Clothing, and Online businesses.

Sales Performance and Financial Updates

Pick n Pay Stores Limited reported a positive sales performance for the 52 weeks ended 25 February 2024, with total sales increasing by 5.4%. The company's South African operations showed divergent results, with Pick n Pay's sales growth slightly declining by 0.2%, while Boxer saw a robust growth of 17.5%. Pick n Pay Clothing achieved a 17.0% sales increase from standalone stores, and online sales surged by 74.4%, thanks to improvements in the asap! platform and Mr D partnership. The Rest of Africa division also performed well, with sales growth of 10.1%.

Asset Impairment and Trading Challenges

The company faced significant challenges during the period, including a R2.8 billion non-cash asset impairment of Pick n Pay Supermarkets stores. This impairment includes R1.8 billion for loss-making stores to be closed or converted and R1.0 billion for underperforming stores to remain open but revalued. These actions are part of a strategic plan to enhance profitability and improve performance through better execution. Furthermore, FY24 results were impacted by gross profit margin contraction, trading expense growth, and several one-off costs, including R423 million in supply chain and restructuring costs, R698 million in diesel costs for generators, and additional trade receivables provisioning.

Recapitalisation Plan and Strategic Outlook

To address financial stability, Pick n Pay announced a two-step recapitalisation plan, including a renounceable rights offer of up to R4.0 billion and the subsequent IPO of the Boxer business by the end of 2024. The proceeds from these actions will be used to repay all Group debt, enhancing liquidity and funding up to September 2025. CEO Sean Summers' strategic plan focuses on turning around the Pick n Pay Supermarkets business while reinforcing high-growth areas like Boxer, Pick n Pay Clothing, and Online businesses. The Group aims to improve financial performance through strategic execution, continued strong profit growth from key segments, and reduced interest charges from debt reduction. Stakeholders will be updated on the strategic plan and financial performance during the FY24 results presentation on 27 May 2024.