R141 million load shedding pain for Pepkor

Pepkor has seen a drop in profits amidst a challenging economic environment.

In its financial results for the year ended 30 September 2023, the group said that consumers are facing severe financial strain due to high living costs, unemployment and continued disruption in social grant payments.

“Electricity load shedding continues to restrict economic activity. The lost trading hours more than doubled this year, reaching 845,000 hours, and diesel costs surged by 69% to R141 million for the year,” the group said.

However, the group has invested heavily in alternative power sources, with 100% of PEP and Ackermans fully covered.

“These measures are, however, only effective up to certain stages of load shedding. Load shedding further affects customer movement, activity and spending power,” it added.

Growing crime, such as burglaries and armed robberies of stores, also affects employee and customer safety; the group said it has put in several measures to protect employees and assets at additional costs.

However, the group did experience market share gains in the Babies, Adult and Home categories, with the group selling two out of three babies’ and one out of two kids’ apparel items in South Africa.

Speciality also expanded market share in the Adult category whilst Ackermans gained share in the Schoolwear, Younger girls and Lingerie categories.

However, product supply challenges were experienced in certain categories, such as cellular handsets. Although this negatively affected sales performance, the group still sells seven out of 10 prepaid handsets in South Africa.

“Headline earnings of R5.5 billion was in line with expectations, negatively impacted by elevated debtors’ costs and net finance costs,” the group said.

“The implementation of the group’s credit interoperability strategy in the South Africa-based clothing and general merchandise retail brands has yielded pleasing results, notwithstanding increased debtors’ costs in the form of provisions raised. The overall group credit sales mix increased to 10% from 8% in the prior year.”

More specifically, the group’s headline earnings per share dropped by 8.2% to 149.2 cents (FY22: 162.6 cents).

The dividend per share also dropped by -12.9% to 48.1 cents (FY22: 55.2 cents).

Outlook

The consumer and operating environment in South Africa continues to pose challenges. Substantial disruption in port operations is adversely affecting stock inflows following year-end,” the group said.

“Although sales performance exhibited fluctuations in October 2023, trading remains resilient and robust during periods when money is injected into the market, such as payment days for
social grants, salaries and wages.”

It noted that the success of the first quarter of FY24 depends on the performance of the festive and back-to-school trade,

“In FY24, it is anticipated that product inflation will alleviate to mid-single-digit levels, supported by enhanced sourcing strategies and deflation in factory gate prices. This will benefit customer affordability and boost sales volumes. The group continues to implement specific cost-reduction measures.”

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