Pepkor, SA’s largest retailer by store footprint, is accelerating its expansion in Brazil — where it sees a long runway to win market share — two years after it acquired South American retailer Grupo Avenida.
The group on Tuesday said it had increased its presence in Brazil and would continue to do so due to its prospects in that country.
“New store openings in Avenida accelerated to 22 during the period, up from six new stores opened in the same period last year. The Avenida store network expanded to 163 stores,” it said.
“The potential for expansion in Brazil remains compelling, allowing the group to build international scale and once again establish itself as a global leader in discount and value retail.”
Avenida is now one of the 10 largest retail chains in Brazil and has more than 160 stores across two brands: Lojas Avenida, which offers clothing, footwear and homeware, and Giovanna Calçados, a footwear store.
Pepkor in 2022 spent about $22m buying a controlling stake in Avenida.
The size of Brazil’s population, estimated at 220-million was one of the drawcards for Pepkor in making a foray into Latin America. Avenida has a market-leading position in the core midwest and northern regions of Brazil.
Pepkor reported a 3% decline in profit at the halfway stage of the financial year as consumers remain financially constrained.
Profit for the period from continuing operations for the six months ended March declined to R2.77bn from R2.86bn a year ago, the company said in a statement on Tuesday.
Including discontinued operations, profit was down 17.7% at R2.47bn. Revenue was up 9.5% to R43.3bn, driven by robust trading in traditional retail, which strengthened further into the second quarter.
The Easter trading period was successful on a comparable basis with double-digit sales growth achieved by PEP, Ackermans and Specialty, and high single-digit sales growth in JD Group, it said.
Headline earnings per share declined 3.1% to 75c.
Resilience
The group continues to build resilience in renewable solar capacity and through collaborative initiatives such as electricity load curtailment achieved in PepClo at the Parow campus in Cape Town.
Import supply chain disruption adversely affected in-store product availability during the period, it said.
Retail gross margins benefited from improved full-price sales with lower markdown activity. Retail store expansion continued with a total of 111 new stores opened by the group during the period, taking the total retail store base to 5,823 stores.
The group’s ambition to expand its underrepresented share of the adult apparel market led to the decision to reposition the women’s stand-alone retail concept in Speciality as a mid-market retail brand.
Good progress was made during the period in the execution of the group’s fintech strategy. Fintech revenue increased 24.5% to R5.8bn.
More than 550,000 new A+ accounts were opened and over 200,000 active cellular handset rentals achieved.
Since March, trading had continued to fluctuate but remained resilient, it said. Trading strengthened across most brands in April but weakened in May.
The second half of the group’s 2024 financial year will have to contend with a higher base as the previous year included a 53rd trading week.
The import supply-chain disruption continues to adversely affect merchandise inflows to stores in addition to fluctuating shipping rates. Logistics teams are making good progress in flexing the group’s distribution capability to deal with supply backlogs, prioritising stock freshness to minimise the risk of markdowns.
The group’s strategic execution is progressing according to plan with initial success demonstrated in the reporting period.
Update: May 28 2024
This story has been updated with new information.
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