The money expected to be raised in Boxer’s unbundling from Pick n Pay is set to go a long way in settling the group’s R6.1bn debt pile, which is now all guaranteed by Boxer. That followed the inking of a restructuring agreement with lenders, giving the group liquidity to stay afloat until September 2025.
The struggling retail giant is undergoing a strategic turnaround to lift its supermarket business out of the doldrums.
To stay afloat, Pick n Pay announced a two-step recapitalisation plan earlier in 2024, including a renounceable rights offer of up to R4bn and the subsequent IPO of the Boxer business by the end of 2025.
On Wednesday, the grocery store major said it expected to swing to a full-year loss when it delivered its annual group results on May 27, as its earnings were affected by a R2.8bn noncash asset impairment of Pick n Pay Supermarkets stores.
The impairment, which covers right-of-use and physical store assets, has two components. First, a R1.8bn impairment of assets of selected loss-making company-owned Pick n Pay stores, which will be closed or converted to Pick n Pay franchises or Boxer stores under the group’s strategic plan. And second, a R1bn impairment of the assets of underperforming company-owned stores that will remain open.
“This reflects the revaluation of the assets of stores where the current profitability is below the value of assets, but where the group has chosen to retain the stores and drive improved performance over time,” it said.
The retailer expects an annual headline loss per share on a reported basis of 228.99c-177.14c for the 52 weeks to February 25, from headline earnings per share of 259.25c a year ago.
The group increased total sales by 5.4% for the 52 weeks, with like-for-like sales growth of 2.9%, it said. Pick n Pay SA’s sales declined 0.2% but were up 0.2% on a like-for-like basis, while Boxer SA sales growth was 17.5% (8.1% like-for-like), delivering total SA sales growth of 5.2% (2.6% like for like).
In addition to the impairments, the group said gross profit margin contraction and trading expense growth exceeding sales growth in Pick n Pay Supermarkets, coupled with R307m in employee restructuring costs and R698m in diesel costs to run generators, had also negatively affected the 2024 performance.
FNB wealth management’s Wayne McCurrie said the Pick n Pay losses were not as bad as the market had expected, with the rest of Africa operations performing well.
This was evident in the market reaction as Pick n Pay shares rose as much as 11.77% on Wednesday before retreating to trade 4.21% higher at R22.05.
Boxer, which serves the low-income market, and Pick n Pay’s clothing business have continued to perform well.
Pick n Pay Clothing sales growth from stand-alone stores was 17% (7.7% like for like), while Pick n Pay Online delivered sales growth of 74.4%, driven by ongoing improvements in the group’s asap! platform and its Mr D partnership. The rest of Africa division increased sales by 10.1% and 12.5% on a constant currency basis.
Pick n Pay said it concluded a debt restructuring agreement with its short- and long-term lenders on May 7, which secured the group’s liquidity and funding up to September 2025.
“In terms of this restructuring agreement, the rights offer and IPO proceeds will be used to repay all group debt, except to the extent that lenders elect to provide ongoing working capital facilities beyond the IPO,” it said.
“All of the group’s debt is now guaranteed by Boxer and is secured by the group’s shareholding in Boxer. The guarantee and security will be released at the time of the IPO, to facilitate the IPO process.”
The group said its recapitalisation plan, which comprises a proposed renounceable rights offer of up to R4bn, expected to take place in midyear, followed by a proposed share offering and subsequent listing of the group’s Boxer business on the JSE towards the end of the year, was progressing well.
Highlighting that Pick n Pay faced incredible competition in the local landscape, McCurrie said all of the restructurings and recapitalisation of the business would not matter if the company was unable to get its sales up and essentially fight back against Checkers.
“That’s the true test: can they get people in their shops, buying stuff that they want to buy on a price that’s comparable to Checkers?” he said. “Will their Pick n Pay asap! work as well as Checkers Sixty60?”
“Making Pick n Pay competitive again against Checkers — that’s the hard part and that’s going to take time,” he said.
CEO Sean Summers’ new strategic plan has been approved by the board, with details expected at the full-year results presentation. The plan primarily focuses on turning around the Pick n Pay Supermarkets business, while reinforcing the group’s strategic initiatives in the high-growth Boxer, Pick n Pay Clothing and Online businesses, and unlocking shareholder value.
The group expects to improve its financial performance over the next two years.
“CEO Sean Summers’ strategic plan focuses on turning around the Pick n Pay Supermarkets business while reinforcing high-growth areas like Boxer, Pick n Pay Clothing and Online businesses. The group aims to improve financial performance through strategic execution, continued strong profit growth from key segments and reduced interest charges from debt reduction,” IG senior market analyst Shaun Murison said.
Update: May 22 2024
This story has been updated with analysis.
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