23 Apr Pick n Pay looking stronger, beats forecasts
Pick n Pay this week reported a rise in full-year profit that beat analyst estimates as the South African supermarket chain cut costs from its distribution network, opened more stores and repaid debt.
Earnings per share excluding one-time items gained 28 percent to 177.26 cents in the year through February, the Cape Town-based company said in a statement on Tuesday. The average estimate of 13 analysts surveyed by Bloomberg was for adjusted earnings per share of R1.71. The shares gained 4.6 percent to R53.88 by the close in Johannesburg, wiping out losses for the year and valuing the company at R26-billion ($2.2 billion).
“Pick n Pay has stuck to its guns and trimmed the excess fat,” Kyle Rollinson, an analyst at Avior Capital Markets, said. “Even with driving efficiencies, it still has to show how it will go out and get market share and this in a South African market that is under significant pressure.”
The supermarket chain appointed former Tesco executive, Richard Brasher, in 2013 to lead a turnaround of the company after profit slumped. Changes include an overhaul of its structure to focus on a more centralised distribution network, which has helped reduce costs and ease the pressure of muted consumer spending.
South African shopping chains have been struggling amid unemployment of about 25 percent and high levels of personal debr. Shoprite, South Africa’s biggest grocer, said in February that rolling blackouts are its biggest concern for coming months as shoppers stay away and companies are compelled to pay for backup power. Pick n Pay’s utility costs climbed 12 percent in the period as diesel use and generator maintenance costs spiraled due to power cuts, the company said.
Pick n Pay added 113 new stores during the 12 months, bringing the total to 1,189, while interest payments declined 40 percent after the repayment of R700 million of debt. The company raised the full-year dividend by 28 percent to R1.18. Sales rose 6.2 percent to R67.6-billion.
The company, which recently established a warehouse dedicated to online shopping near Cape Town, may also install similar offerings in Johannesburg and Durban to increase online product availability in those cities, Brasher said. Online sales climbed about 30 percent in the year.
The grocer also plans to double its express, or smaller stores to 100 by the end of Feb 2016 and to focus on the fresh food at those outlets, which are attached to BP petrol stations.
In Africa outside of Pick n Pay’s home market, revenue climbed 14 percent as the company opened two stores in Zambia and a net five in Namibia. The retailer will open its first store in Ghana in 2016 as “markets outside South Africa remain a potential second engine of growth”.
Source: Bloomberg
BDLive Editorial Comment: Rivalry good for consumers
Go back a decade or two and Pick n Pay had an absolutely dominant position in the food retail market, enabling it to call the shots in relation to suppliers and limiting the choice shoppers had.
But the market has changed in some fundamental ways in recent years, and competitors raced ahead while a rudderless Pick n Pay lost market share.
These days shoppers want convenience, especially at the upper end of the market which Pick n Pay traditionally served.
Tastes have changed too, with that market increasingly choosing fresh foods over processed ones.
Those trends have given Woolworths and Spar an edge over Pick n Pay, which fell behind the curve in failing to cater adequately for new consumer habits.
Meanwhile Shoprite has taken huge market share at the lower end of the market since it bought OK Bazaars 15 years ago and started closing unprofitable stores and becoming more efficient.
Since former Tesco executive Richard Brasher took over as CEO in 2013, Pick n Pay has in a sense started to do what Shoprite did all those years ago — cut unprofitable stores, get stock levels right and become more efficient.
The latest results reflect the fruits of the first stage of its turnaround, with headline earnings per share up 28%. But more work needs to be done.
Sales growth was 6%, with like-for-like growth of about 3% — which was well below rivals Shoprite or Woolworths.
Its margins too are below those of competitors.
Many of Pick n Pay’s stores are still franchises, and that will limit how much it can lift margins, which is a problem.
It is early days yet for a turnaround that can only be good for the market. Pick n Pay’s travails lost it its dominance, creating space for a more competitive market. That is to be encouraged.
But as the others gain market share, a healthy Pick n Pay would contribute to making sure the market stays contested and that no one gets too dominant again.
Source: BDLive.co.za