Pick n Pay’s share price fell the most since May 2020 as the market took a dim view of high operating costs, rising debt to finance expansion and sluggish growth in its premium brand, as reported in its interim results on Tuesday.
By the JSE’s close the share price had fallen 9.31% to R58.54.
The group, which includes discount brand Boxer and Pick n Pay’s clothing and liquor stores, said same-store group revenue growth was 7.4%, only marginally above price inflation of 7.2%.
Profit after tax for the 26 weeks to August 28 rose 52.7% year on year to R453.3m, while headline earnings per share, a widely used measure of profit that strips out impairments and one-off items, was up 59.5% at 97.73c. However, the numbers came off a low base after the July 2021 riots in KwaZulu-Natal and parts of Gauteng, plus restrictions on liquor sales during the lockdown.
Tuesday’s results were the first time the retailer, valued at R28.89bn on the JSE, gave a separate breakdown of the turnover from the Pick n Pay and Boxer brands following calls by investors for better disclosure.
They show Boxer, which accounts for 30% of turnover, experienced overall revenue growth, including new stores, of 27.2% to R14.97bn, compared with 5.4% growth from Pick n Pay in SA, which accounts for almost 70% of revenue.
Boxer’s same-store growth of 14.5% is above that of any other listed food retailer, showing just how well the discount brand is performing.
The Pick n Pay division of the business, which includes its clothing and liquor stores, reported like-for-like growth of 4.5%.
“If the Pick n Pay numbers, excluding Boxer, are this weak, with the boost of clothing, then it confirms in my mind just how much the Pick n Pay grocery stores are lagging their peers, which is something I’ve anecdotally observed in my own shopping trips,” said Alec Abraham, an analyst at Sasfin.
Trading expenses rose 10.6% as the company faced increased security and insurance costs after the KwaZulu-Natal riots, in addition to added diesel costs for store generators in July and August. It spent R110m more on power in the half-year even as it implemented solar solutions to increase electricity savings.
The company upped its interim dividend by just more than a quarter to 44.85c.
In response to the share slump, CEO Pieter Boone said the retailer should be judged in 2026, when the company’s new strategy is expected to be bearing fruit.
“Let us not make a judgment call on the share price” after a few hours, Boone said. “Let’s see where we are at the end of the 2026 financial year.”
Pick n Pay is undertaking a new strategy, dubbed Ekuseni, to deal with stiff competition. It is focusing on two distinct markets: lower-income stores under the brand name Qualisave, and the higher-income Pick n Pay chain. It is rebranding and upgrading stores, while reducing products on sale to cut costs and better target customers. It is also expanding its Boxer chain.
Boone denied reports that Pick n Pay’s grocery stores are running at a loss or recording flat growth, and that this was being hidden by success in its growing clothing, liquor and franchise divisions. “I can confirm that is not the case,” he said.
But it is hard to ascertain exactly how Pick n Pay grocery stores are doing with disclosure of the two divisions’ volume and price growth not yet revealed.
Asked why Pick n Pay didn’t give more detailed figures such as divisional profits in the clothing or liquor categories, Boone said: “We’re coming from a period whereby we didn’t disclose anything ... you have to be with us on the journey as well. More and more disclosure, that’s something I promised the market.”
Abraham said: “I think they do need to improve disclosure further. From an analyst point of view it will allow proper comparisons for the clothing division, for instance against Mr Price and Pep.”
Pick n Pay’s net cash position swung from R400m in the bank to R1.14bn net debt in the half-year as it is now using debt to fund its Boxer expansion, online sales, clothing stores and Ekuseni.
Boone called it a temporary situation. “I'm not concerned because of the returns that we make out of those investments.”
He called on the media and shareholders to be patient with the retailer’s new strategy as the first 41 revamped stores have shown an increase of over 20% in sales in key grocery categories, and increased customer satisfaction. “It is giving me the confidence that we are on the right track.”
Pick n Pay said it is expecting a challenging second half as it spends more on expansion and revamps, while facing a weakening economy.
It has repeatedly said it only expects meaningful profit growth from the 2024 financial year as it focuses on investment in this financial year to end-February.
Update: October 18 2022
This story contains new information throughout.
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