Pick n Pay says profits rose 20% thanks to SA business and better prices

Pick n Pay

Pick n Pay Stores says net profit rose by about a fifth in the financial year to March 3, even as its operations outside SA stumbled.

The group said its stores targeting SA’s lower-to-middle-income consumers performed well, while sales were also boosted by “a more competitive price position” and a better fresh-produce offering.

Thanks in part to promotions, Pick n Pay said selling prices were cut 0.3% in the year, while volume growth of 5.1% “represented its strongest underlying trading performance for many years”.

“Market-leading turnover growth was achieved without sacrificing earnings growth,” it said.

Profit after tax was R1.65bn in the 53-week period, versus R1.3bn in the prior 52-weeks. On a pro-forma basis, net profit was up 19.9% as turnover grew 7.1% and margins improved.

In SA, turnover grew 7.4% and profit before tax was up 23.8%.

Bjorn Samuels, equity analyst at Argon Asset Management, said Pick n Pay posted “a good set of results”.

“Both total and like-for-like sales outperformed peers, indicative of market share gains,” Samuels said.

Rival retailer Shoprite said in February its half-year earnings fell, partly because of Angola’s currency crisis and minimal selling-price increases in SA. Sales from the group’s supermarkets in SA declined 0.5% on a like-for-like basis.

Selling price inflation in SA was expected to rise towards June, Shoprite said at the time.

High-end retailer Woolworths grew half-year food sales by 6.3%, or 4.2% on a comparable stores basis, mainly thanks to increased volumes. Prices rose 1.2%.

Pick n Pay declared a final dividend of 192c a share on Friday, bringing the total annual dividend to 231.1c per share, a 22.4% increase.

Despite the upbeat financial report, Pick n Pay’s shares were 2.4% lower at R69.97 at 12.30pm on Friday.

The group, led by former Tesco UK boss Richard Brasher since 2013, said the performance of the SA business — which trades under the Pick n Pay and Boxer brands — “mitigated some operating challenges experienced outside its borders”.

Earnings from the rest of Africa fell 16.2%, “reflecting difficult economic conditions in Zambia and the once-off impact of currency devaluation in Zimbabwe”, Pick n Pay said.

The group added 110 net new stores in the period, while 103 stores were refurbished.

Value-added-services income, including from the group’s partnership with TymeBank, was up 41.5%.

Despite the weaker contribution from outside SA, Pick n Pay said it had started building a store in Nigeria, which would open in 2019, and it planned to open two more in that market.

“Over the past six years we have changed the trajectory of Pick n Pay,” Brasher said. “This has been a very good year.”

He said Pick n Pay would invest R2bn in the business in the financial year ahead, compared to R1.5bn in the 53 weeks to March 3.

It planned to invest in the Boxer business — which “can easily double in size” — in terms of store refurbishments, and in the Pick n Pay Express chain.

While the group would probably open more than 100 stores in the coming year, the industry’s store-growth race “has moderated”. Brasher said the grocery industry in SA was not yet efficient enough and food prices remained too high.

Samuels said that while Pick n Pay’s pre-tax margin improved to 2.4%, trending towards the long-term target of 3%, “we believe further margin expansion will be very difficult going forward”.

This was because retailers generally were struggling to keep expense growth below revenue growth.