Pick n Pay posted strong sales at its supermarkets, particularly at Boxer stores, which, with cost and prices cuts, and by driving change through their new “Ekuseni” strategy, resulted in the interim dividend rising 25.3% to 44.85 cents in the six months to end August.
CEO Pieter Boone said in a telephone interview that the results were pleasing considering the headwinds the group faced, including rising food and internal inflation, particularly on energy costs such as having to keep the stores open with generators through load shedding, which cost the group R110 million in the six months.
Group turnover was up 11.5%. After normalising for disruptions in the base period due to the civil unrest, and Covid-19 liquor restrictions last year, turnover increased 8.2%. Turnover growth for the first four weeks of the second half was 8.4%.
Internal selling price inflation of 7.2% reflected the general inflationary environment. Boone said they had stuck to a commitment to support customers through lower prices by holding selling prices below CPI Food, which rose from 8.6% in June to 11.3% in August.
However, Boone said he was “cautious” about prospects in the second half, as they anticipated continued strong headwinds including continuing inflationary pressures, rising energy prices and load shedding. Nevertheless he said they were confident about their preparedness for a strong Black Friday and Christmas season performance.
He said they had achieved much in the five months since the launch of the Ekuseni strategy in May.
“We have unveiled a new retail banner in Pick n Pay QualiSave, dedicated to customers who want Pick n Pay quality at exceptional prices. We are rejuvenating our Pick n Pay stores at pace, and the sales growth and customer feedback in these stores is encouraging.
“We have also launched our new Pick n Pay online grocery offer on Mr D... and we will roll it out nationally by the end of the year,” he said.
Turnover growth in the Boxer and Pick n Pay businesses were reported separately for the first time.
Value store chain Boxer South Africa’s turnover grew strongly 27.2% to R15 billion and they were on track to double Boxer sales over the four years of the Ekuseni plan, said Boone.
“Stakeholders can now see why we are so excited about the potential of Boxer. We are opening new Boxer stores rapidly and will accelerate this in the coming months,” he said.
Pick n Pay South Africa (Pick n Pay and QualiSave) grew sales 5.4% to R34bn, a performance Boone described as “respectable in a tough market”.
The redefined customer value proposition (CVP), the first building block in the Ekuseni strategy, saw 41 stores upgraded to the new CVP, with plans to increase this to 130 stores by the end of February.
The upgraded stores were seeing weekly sales growth of 15% compared to a year ago.
Meanwhile, the Pick n Pay QualiSave brand was launched on August 15, and so far 93 stores had been converted to the brand.
Some R315m of savings in the group were delivered, enabling Pick n Pay to restrict like-for-like cost growth in South Africa to below like-for-like sales, and Boone said they were on course to achieve a targeted R750m saving in costs by year end.
A key development was the signing of a multi-skilling agreement with labour union Saccawu, improving productivity and customer service and in line with international trends.
The gross profit margin increased to 19.4% from 18.2%. Taking the effects of the July 2021 riots into account, the gross profit margin contracted by 0.6% points, reflecting also investments in lower prices, and energy cost increased.
Online sales grew 82%, primarily through Pick n Pay asap! Growth was expected to accelerate following the launch this month of the new Pick n Pay grocery offer on the Mr D app, with full national coverage by the end of the year.
Pick n Pay Clothing saw 14.8% sales growth, opening 28 new stand-alone stores. Group liquor sales grew 36.2%. 17 new liquor stores were added, taking the total to 646 stores.
The Rest of Africa segment contributed sales of R2.4bn, an increase of 17.9%. Pro forma pre-tax profit of R131.9m (before the application of hyperinflation accounting) was up 44%, with another good performance from Zimbabwe.
What the analysts said:
Despite the Pick n Pay’s solid results yesterday, the share price slipped a hefty 8.5% to R58.99 yesterday afternoon.
Gryphon Asset Management portfolio manager Reuben Beelders said the decline was likely due to investors who had bought the shares as part of a defensive strategy in an uncertain environment, who had been reminded that the new CEO had warned last year that returns at this year end may be muted, due to investments required to reshape the group.
Zinhle Mayekiso, an analyst at Anchor Capital, also said that while Pick n Pay had recorded a good top-line growth performance during the period under review, external cost pressures had resulted in underlying margin pressures.
“These headwinds are expected to persist in the second half of FY23 (financial year). Increased cost pressures and a tougher macro-economic environment are also key market concerns that will be an overhang for the share price over the near term,” Mayekiso said.
“The retailer’s Ekuseni strategy is still in its infancy and is expected to provide meaningful growth for Pick n Pay’s traditional stores from FY24 (financial year 2024) onwards,” Mayekiso said.
Meanwhile, Jami Jepthas, an investment analyst at Mergence Investment Managers, when asked by Business Report how Pick n Pay was doing versus rival Shoprite, she said in terms of Pick n Pay’s online sales, while it grew 82% year on year in the first half of 2032, this was a deceleration from the 18 weeks ended July 3 (+97.3%).
“The growth in online sales is still significant given this is post-pandemic growth, but it still lags Checker’s Sixty60 latest reported sales growth of 150% for FY22,” she said.
Jepthas said she was impressed by the Boxer results as Pick n Pay reported the Boxer sales numbers separately for the first time.
“Boxer’s absolute sales and contribution to group sales are ahead of my estimates and likely ahead of what the market estimated for this business,” Jepthas said.
Boxer SA sales growth in the first half was 27.2% compared to the latest reported sales growth for Shoprite and Usave of 6.7% and 11.4%, respectively.
“Boxer’s like-for-like sales growth – excluding the civil unrest impact – was 14.2%, which is still ahead of Shoprite and Usave’s latest numbers, which do not include the civil unrest base.
“Another positive from this result was management confirming that they are on track to achieve Boxer targets communicated to the market (61 new stores in FY23 and doubling sales by FY26).”
Boxer was not just catching up to Shoprite but seemed to be outperforming them, Jepthas said.
“According to Boxer and Shoprite’s FY22 numbers, it looks like Boxer is generating 1/3 of Shoprite and Usave sales combined, from a store base, which is only about 1/5 the size of the Shoprite and Usave supermarket estate,” she said.
Jepthas said as to whether they were catching up to Shoprite, from a Pick ‘n Pay core groceries perspective, they still had some way to go to catch up to Shoprite.
“The combined Pick ‘n Pay and QualiSave SA sales grew 5.4%, which includes Clothing, which grew at 14.8% and Liquor, which grew at 36.2%. This implies the underlying Pick n Pay core groceries sales still lag Shoprite quite significantly.
“The new customer value propositions (CVP) from their Ekuseni strategy have only been fully implemented for one quarter in only approximately 13% of the company-owned supermarket estate. As they continue to roll this out, we can expect to see more of a catch-up to Shoprite coming through from FY24,” she said.
– Additional reporting by Philippa Larkin.
BUSINESS REPORT