Pick n Pay in trouble as load shedding and increased competition tank profits

Pick n Pay has posted a significant loss for the six months ended 27 August 2023 (H1 FY24), as the group’s key core supermarket business takes a severe hit.

“The group delivered a disappointing result in a period heavily impacted by load shedding and increased competitive intensity,” the group said.

“The R396 million spent on diesel to run generators and keep stores open not only impacted expense growth but also constrained Pick n Pay’s ability to respond to increased promotional activity in the market.”

Although group turnover increased by 5.4%, with Boxer seeing a 16.1% increase, the gross profit margin
lowered by 0.9% to 18.5%, while gross profit in rand terms increased by 0.4% y/y.

Trading expenses grew by 13.7% due to the increased energy costs and employee restructuring.

Trading profit dropped to R31.8 million from R1.2 billion in H1 FY23, with the R565.0 million incremental abnormal costs taking their toll.

This included R259.0 million in employee restructuring costs, R190.0 million in net incremental energy costs, and R116.0 million in duplicated supply chain costs from the Eastport distribution centre transition.

Additionally, profit before tax was impacted by a 47.3% increase in net finance charges, resulting in a pro forma loss before tax and capital items of R837.2 million.

Overall, the group’s headline earnings per share (HEPS) dropped 241.5% from a profit of 97.73 cents per share in H1 FY 23 to a loss of 138.24 cents per share in H1 FY24.

Amidst this challenging period, the group elected not to declare an interim dividend.

Outlook

Although the group’s key growth drivers – Online (up 76.3%), Boxer (up 16.1%), and Clothing (up 13.8%) – saw strong sales growth, the performance of the group’s core Pick n Pay supermarkets left much to be desired with sales only growing 0.3% over the period.

“Revamped stores and the QualiSave format continue to outperform non-revamped Pick n Pay supermarkets, but the water level for all Pick n Pay supermarkets is below what it should be,” the group said.

Returning CEO Sean Summers’ main focus will be to turn around the core Pick n Pay supermarkets into growth and profitability.

However, the group’s management expects to face continued headwinds in the second half of the financial year, even if earnings are expected to be stronger due to the more supportive seasonal earnings, net incremental energy cost growth off a low base, non-repat supply chain cost duplication and efficiencies from Project Future initiatives.

It added that H2 FY24 earnings are likely to be lower than those in H2 FY23.

Finally, the group warned that earnings per share (EPS), HEPS and pro forma HEPS for the full FY24 are expected to decrease by more than 20% compared to the previous financial year.

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