Pick n Pay Stores Limited recently unveiled its trading statement for the first half of the 2024 financial year (H1 FY24) along with a trading update for the 20 weeks ending 16 July 2023. The report reveals a tale of mixed fortunes for the Group as it navigates a challenging economic landscape.
Online Sales and Project Future Initiatives Bolster Growth
Amidst economic headwinds, Pick n Pay made significant strides in implementing its Ekuseni Strategic Plan, witnessing robust sales momentum in its Boxer and Online divisions during the first four and a half months of H1 FY24. Online sales proved to be the star performer, soaring by an impressive 75.3%, building on the strong online sales growth momentum witnessed during the previous financial year, FY23.
In line with its commitment to drive efficiencies, the Group’s Project Future people initiatives showed meaningful traction during the period. The successful completion of two key projects launched in March – the Voluntary Severance Programme (VSP) and the Junior Store Management restructuring – paved the way for expected annualized ongoing cost savings of approximately R300 million.
Group Sales Performance
The overall group sales for the 20-week period from 27 February 2023 to 16 July 2023 reflected a positive growth rate of 4.8%. South Africa sales increased by 4.4% (0.9% like-for-like), while the Rest of Africa segment experienced even more robust growth at 15.9% (12.0% on a constant currency basis).
In addition to the strong online sales, the clothing segment in stand-alone stores recorded notable growth, with sales increasing by 10.9%. Group liquor sales also demonstrated strength, growing by 9.8%.
Challenges Faced in South Africa
Despite the overall positive performance, Pick n Pay SA faced certain challenges during the 20-week period. Sales growth for Pick n Pay SA declined by 0.3% (0.0% like-for-like). This slowdown in sales momentum was attributed to reduced promotional activity as the company managed the impact of elevated load shedding costs. Load shedding, a scheduled power outage, has been a recurring issue in South Africa, impacting businesses and consumers alike.
However, as load shedding decreased in June and early July, Pick n Pay SA managed to intensify its promotional program, leading to a sales recovery towards the end of the period. During the last three weeks of the 20-week period, sales growth for Pick n Pay SA rebounded to 2.4% (2.9% like-for-like), signaling a potential turnaround in the segment’s performance.
Boxer SA, on the other hand, showed resilience by recording sales growth of 15.4% (3.0% like-for-like), despite facing a high base from the previous financial year, H1 FY23.
Earnings Guidance and Restructuring Costs
Looking ahead, Pick n Pay issued a trading statement indicating that it expects a decrease of more than 20% in earnings per share (EPS), headline earnings per share (HEPS), and pro forma headline earnings per share (pro forma HEPS) for H1 FY24 compared to H1 FY23. The company attributed this expected decline to various factors, including load shedding costs, duplication of supply chain costs during the Longmeadow/Eastport handover, and restructuring costs associated with the Project Future initiatives.
| Factor | Estimated Cost (R million) |
|---|---|
| Total diesel costs and net incremental energy costs | R610 |
| Duplication of supply chain costs during handover | R110 |
| Anticipated H1 FY24 restructuring costs | R250 |
These abnormal costs cumulatively total R610 million, potentially leading to a H1 FY24 loss at the earnings, headline earnings, and pro forma headline earnings level. However, management clarified that, excluding certain one-off costs, the Group does not anticipate a loss for the period.
Future Outlook
Despite the challenging first half of FY24, management expressed optimism for the second half of the financial year. They anticipate a stronger H2 FY24 earnings outlook due to more supportive earnings seasonality, relatively low net incremental energy cost growth compared to the high base of H2 FY23, and the non-repeat of supply chain cost duplication. Moreover, efficiency gains from the Project Future initiatives are expected to contribute positively to performance in the second half.
Management plans to provide further updates on EPS, HEPS, and pro forma HEPS for H1 FY24 once they have a higher degree of certainty regarding the financials.
Pick n Pay remains committed to delivering low prices to consumers despite challenging economic conditions. The Group raised R5.5 billion of medium- and long-term facilities during the period, reinforcing its financial position and allowing it to achieve its targeted debt profile.
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