Pick n Pay takes biggest knock in almost 14 years
PICK n Pay Stores fell the most in almost 14 years on Friday after a warning that business conditions remained difficult and after reporting first-half earnings that missed estimates.
The retailer’s shares declined by as much as 9 percent before ending down 8.22 percent, the most since December 2001, and at a five-week closing low of R61.49 on the JSE.
This fall came despite Pick n Pay reporting that it expected earnings per share and headline earnings per share to improve by between 15 and 25 percent when it released its results for the half year ended August.
Diluted earnings per share, excluding one-time items, were between 61.09c and 66.40c a share in the six months through August from 53.12c a year earlier, Pick n Pay said.
That compared with the 69c per share estimate of Alec Abraham, an equities analyst at Sasfin Securities.
The earnings “are below my expectations and shows the company has done nothing to significantly cut costs or improve margins”, he said.
“Retail investors have over the past month pushed up the share and this has been overdone,” Abraham said.
Earnings per share excluding one-time items were “lower than I expected”, said Kyle Rollinson, an analyst at Avior Capital Markets.
Increase
In the half year ending August, the group expects headline earnings per share to increase to between 62.08c and 67.48c from 53.98c a year earlier.
Jean Pierre Verster, an analyst at 36ONE Asset Management, said the market should have expected higher profits and cited the 26 percent fullyear consensus earnings growth as being not much higher than the group’s range of expectation.
“The market got carried away. Pick n Pay has a lot of self-help programmes in place, they are refocusing and cost cutting. Chief executive Richard Brasher is doing good work, but the share price needed to come back in line with the group’s earnings trajectory,” Verster added.
The company said turnover growth in the first half of the year accelerated to 8.5 percent compared with 6.1 percent in the 2015 financial year.
Turning to the outlook, the group said: “Market conditions are likely to remain difficult in the second half of the financial year, but the group’s first-half performance provides a solid base on which to deliver.”
South African retailers, like Pick n Pay, were battling with consumer confidence that remained depressed as shoppers held back on spending even as fuel prices fell, First National Bank said last week.
Unemployment of 25 percent and almost daily power cuts earlier this year also weighed on households.
Adding to the woes was South Africa’s growth rate coming under revision again as Finance Minister Nhlanhla Nene last week warned that domestic growth forecasts would have to be revised down.
Pick n Pay in particular embarked on a turnaround plan a year ago to claw back market share from rivals, including Shoprite which took advantage of the group’s shoddy stores, high costs and poor distribution.
“The second stage of the plan – changing the trajectory of Pick n Pay – will deliver accelerated improvements in operating efficiency, investment and innovation in the customer offering, a further strengthening of the balance sheet and financial performance and a dynamic approach to expansion,” the company said in April. –