Strong results boost Pick n Pay
• Shares rally 10.54% to close at best level in months
Pick n Pay delivered strong sales and profit growth in the six months to endSeptember thanks to the centralisation of its distribution facilities and more use of data analytics to monitor shopper trends. The third-largest grocer by market capitalisation (R33.5bn) posted a 6% increase in turnover and a 12.5% improvement in trading profit, which helped its shares rally 10.54% to close at R67.98, its best level in nearly four months.
Pick n Pay delivered strong sales and profit growth in the six months to end-September thanks to the centralisation of its distribution facilities and more use of data analytics to monitor shopper trends.
The third-largest grocer by market capitalisation (R33.5bn), posted a 6% increase in turnover and a 12.5% improvement in trading profit, which helped its shares rally 10.54% to close at R67.98, its best level in nearly four months.
The centralisation, which was implemented several years ago, together with data analytics has helped the company weather tough trading conditions in its primary market, SA, as well as in Zimbabwe and Zambia. “In this environment, retailers have found it difficult to balance their two key objectives: delivering solid sales growth while maintaining profit margins,” said group CEO Richard Brasher.
After stripping out the effect of inflation and additional new stores, the group’s like-for-like volume increase in the six months was 1.3%.
“Given the trading conditions, this was a very good result,” said Sasfin senior analyst Alec Abraham. “My concern was that, with Shoprite on the recovery, Pick n Pay would not be able to achieve any volume growth,” added Abraham, referring to Pick n Pay’s major competitor, which has struggled with the implementation of IT systems during recent reporting periods.
At the previous interim, Pick n Pay recorded a 3.5% volume rise as it used the benefits of improved stock-management efficiencies to cut prices to hardpressed consumers. Analysis of data collected from customers is shaping Pick n Pay’s stockpurchasing strategy and driving what Brasher called “range optimisation”.
Abraham said this allows the group to tailor its stock offerings in individual stores to the customer profile of that store. “It enables us to eliminate more waste and ensure we’re providing more of what the customers want,” said Brasher.
The benefit was seen in the turnover figure as well as the improvement in the gross profit margin — which measures revenue less the cost of goods sold
— to 19.8% from 18.8%. Trading margin, which also deducts other costs of sales, such as labour, rent and rates, edged up to 2.7% from 2.6%.
At this level it remained significantly behind market leader Shoprite’s SA trading margin of about 5%.
Pick n Pay operates from 1,858 stores across Southern Africa with company-owned stores accounting for 1,056 of the total and franchisees managing an additional 744. The remaining 58 stores belong to associate TM Supermarkets.
Brasher told analysts at a results presentation on Tuesday that the group valued its relationship with its franchisees. “They present an entrepreneurial creativity and uniqueness of operation that we can learn from.” There is no intention to terminate this relationship as Woolworths did almost 10 years ago, he said.
A strong SA performance made up for a weak showing in the rest of Africa where reported
CUSTOMER PROFILES ENABLE US TO ELIMINATE MORE WASTE AND ENSURE WE ARE PROVIDING MORE OF WHAT THE CUSTOMERS WANT
earnings were down 79.8% year on year to R27.5m, reflecting particularly difficult economic conditions in Zimbabwe and, to a lesser extent, Zambia. Brasher said the group will not exit from either country as it has from Mozambique and Mauritius.
“We’re still very comfortable and confident and see no reason to withdraw,” he said, noting that Pick n Pay has not overinvested in the rest of Africa. “We’ll hibernate rather than retreat.”
Group trading profit increased 12.5% to R1.2bn while headline earnings per share rose 17.5% to 91.28c. An interim dividend of 42.8c a share has been declared in line with management’s policy of paying out a dividend that is 1.5 times covered by earnings.