Earnings in Pepkor, the owner of household brands PEP, Ackermans, Tekkie Town, Buco and Incredible, took a knock for the year ended September 30, 2023 amid a challenging operating environment in South Africa with consumers under severe financial strain.
Headline earnings per share fell 8.7% to 149.1c. Headline earnings of R5.5 billion was in line with expectations, negatively impacted by elevated debtors’ costs and net finance costs.
Despite this, the board declared a cash dividend of 48.1 cents per ordinary share payable to shareholders on January 22, 2024. This was down nearly 13% from the prior year’s 55.2c per share dividend.
Pepkor CEO Pieter Erasmus said, “Consumers in South Africa have continued to experience severe economic and social challenges during this reporting period. The result is extreme financial strain. Unemployment remains high, particularly among the youth, which impacts their ability to earn an income. The continued disruption in social grant payments further compounds these challenges as does electricity load shedding, which affects customer movement, activity and spending power.”
Across the Pepkor group, lost trading hours more than doubled this year, reaching 845 000 hours, and diesel costs surged by 69% to R141 million for the year.
Debtors’ costs increased by 57.3% to R1.7bn based on increased credit granting and recognition of expected credit loss provisions. Bad debts amounted to R1.2bn compared to R990 million in the prior year.
Normalised operating profit decreased by 8% to R9.1bn, mainly impacted by increased debtors’ costs, while net finance costs increased by 27.1% to R2.8 bn due to higher interest rates and a higher level of net debt, following the acquisition of Brazilian group Avenida.
However, the retailer increased its sales 7.9% and saw market gains across several of its brands and despite the constraints, trading remained resilient and robust during periods when money was injected into the market, such as payment days for social grants, salaries and wages.
The JSE-listed company posted 7.7% growth in annual revenue to R87.4 billion and said it had a stronger sales performance in the second half of 2023, which drove market share gains.
Based on 12-month moving average RLC (Retailers' Liaison Committee) data to September 2023, PEP achieved gains in the Babies, Adult and Home categories, and Speciality expanded market share in the Adult category.
The group’s operations generated R13bn in cash this year, reflecting an increase of 15.9% on the prior year.
Pepkor lifted group cash sales by 5.6% and credit sales increased by 35.6%, driven by the opening of 794 000 A+ accounts and the implementation of the group’s credit interoperability strategy in the South Africa-based clothing and general merchandise retail brands.
PEP achieved pleasing results with strong like-for-like sales growth of 9.0% in the second half of the year and market share gains across key categories. PEP opened 96 new stores during the year, mostly driven by the PEP HOME format, and expanded its retail base to 2 602 stores.
PEP HOME achieved strong sales growth of 21.9%. The PAXI parcel distribution service, which leverages the retail footprint of PEP and other Pepkor brands over 2 800 locations, increased volumes by 20% to 4.9 million during the year.
Ackermans reported a marked improvement in the second half of the year, with like-for-like sales declining by 1.1% compared to a decline of 8.3% reported in the first half. Improved inventory levels were achieved following successful clearance of underperforming merchandise through markdowns.
The Avenida business in Brazil, which was acquired in February 2022, increased its contribution to group revenue to 4.3% in FY23 from 2.4% in the prior year – in line with prior guidance.
Pepkor said 324 new stores were opened during the year with the group’s store base comprising 5 917 stores at year-end.
Looking to the festive season and beyond, Erasmus said substantial disruption in local port operations was adversely affecting stock inflows.
The success of the first quarter of 2024 would rely on the performance of festive and back-to-school trade. In 2024, it was anticipated that product inflation would ease to mid-single-digit levels, which will enhance customer affordability and boost sales volumes.
Pepkor’s shares have gained 37.4% over three years. In midday trade, Pepkor’s shares were 2.02% lower at R18.43.