Online and clothing sales show resilience despite tough consumer environment
Grocer Pick n Pay is starting to reap the benefits of its turnaround strategy, reporting a narrower loss for the first half.
The group on Monday reported a headline loss of R299m for the six months to end-August from a loss of R439m a year ago, representing an almost 32% improvement.
The group reported a 56.2% year-on-year improvement in loss before tax and capital items to R139m. This was delivered at the operating level, with trading profit improving by R180m.
Group turnover increased 2.4% to R60.5bn, with 6.3% growth from Boxer and the Pick n Pay segment mostly flat. Pick n Pay turnover growth was impacted by a net year-on-year reduction of the store estate of 19 company-owned and franchise supermarkets.
The gross profit margin expanded 0.7% to 18.8%, with improvement in both the Pick n Pay and Boxer gross profit margins.
Group trading profit improved 58.1% to R490m due to a R75m increase in Boxer trading profit to R1bn and a R105m reduction in the Pick n Pay trading loss to R0.5bn.
The group’s headline loss per share narrowed to 40.71c from 59.77c a year ago.
The market warmed to the company’s results with its share price gaining more than 6% to R22.40 on Monday, taking its rise for the past two trading sessions to about 11%.
The group said the performance was achieved against the backdrop of a challenging external environment, given the impact of increased fuel prices from May on both its customers’ wallets and the group’s cost base.
It said while the Pick n Pay segment delivered a reduced loss, the R1.1bn loss at the trading profit after lease interest level “indicates that substantial further profitability improvement must still be delivered to return Pick n Pay to a sustainable basis”, it said.
The online business delivered another standout performance, with turnover growing 35.4%. Pick n Pay Clothing turnover in standalone stores grew 3.9%, with like-for-like sales down 0.7%. The South African clothing market remains “exceptionally challenged”, the group said.
“Our customer experience is being substantially improved, and this is supporting our like-for-like sales growth. The initial benefits of the turnaround elements that have already been put in place are beginning to show in the financial results, with gross profit margin steadily recovering and trading expense growth contained,” it added.
Further benefits are expected to flow over the coming two and a half years, as the group approaches its FY29 trading profit after lease interest breakeven target.
Last week Pick n Pay announced it had reached an agreement on the restructure of its store labour model.
It has withdrawn the section 189A consultation process initiated in May. The agreement reached with its main labour partner, the South African Commercial, Catering and Allied Workers Union (Saccawu), delivers the flexibility, efficiency and market alignment sought by the group’s Pick n Pay segment at the start of the process, it said.
It introduces a simplified and more competitive store labour model that supports more flexible and effective labour scheduling, improved cost management and a stronger long-term position for Pick n Pay’s core supermarket business.
“The group acknowledges the constructive and respectful manner in which our labour partners and employee representatives engaged throughout the process. Together with Pick n Pay’s broader turnaround initiatives, this is a critical step in the journey to profit break-even and long-term sustainability,” it said.
It said for the four weeks since the end of the period, the Pick n Pay segment’s South African supermarket like-for-like sales growth was slightly ahead of that achieved in the first half.
For the rest of the year, the group has flagged ongoing high oil prices and the consequent impacts on food inflation, logistical costs and the ability of the consumer to spend.
It will continue to focus on operating levers within its control, it said.