South Africa’s leading retail giant, Pick n Pay Stores Limited, faced a challenging first half of the fiscal year 2024, marred by load shedding and intensified market competition. The company’s unaudited condensed consolidated interim results for the 26 weeks ended August 27, 2023 (H1 FY24) revealed a decline in key financial indicators, prompting the board to implement strategic changes to navigate through the turbulent waters.
Pick n Pay’s H1 FY24 results painted a grim picture, with the company grappling with a series of setbacks. While Group turnover increased by 5.4%, reaching R54.1 billion, the gross profit margin took a hit, dropping to 18.5% from 19.4% in the previous year. Trading expenses surged to R11.2 billion, marking a 13.7% increase, primarily due to rising energy costs and employee restructuring expenditures.
Perhaps the most significant blow came in the form of a trading profit plummeting to a meager R31.8 million, a stark contrast to the R1,253.3 million reported in H1 FY23. The loss before tax and capital items widened to R880.2 million, emphasizing the challenges faced by the company. Loss per share (EPS) for the period stood at a staggering -118.69 cents, indicating a 225.8% decrease compared to the previous year.
The dismal performance was attributed to several factors, most notably the impact of load shedding on operational costs. Pick n Pay spent a significant R396 million on diesel to keep stores open during power outages, constraining the company’s ability to respond to heightened market competition effectively. These challenges were evident in the decline of the gross profit margin and the trading profit, which included R565 million in abnormal costs.
Despite the hurdles, there were pockets of growth. Boxer, SA’s prominent soft-discounter, demonstrated resilience with a remarkable 16.1% sales growth. Pick n Pay Clothing expanded its footprint, opening 20 new stores and achieving a commendable sales growth of 13.8%. Additionally, online sales soared by 76.3%, driven by a robust 100% YoY growth in on-demand platforms like asap! and Pick n Pay groceries on Takealot’s Mr D app.
In response to the challenging environment, Pick n Pay’s board took decisive action. A change in leadership was announced, with Sean Summers, a seasoned Pick n Pay veteran, taking the helm as CEO from September 30, 2023. His immediate focus lies in revitalizing the core Pick n Pay supermarkets business, which faced disappointing sales and profitability levels.
Summers outlined key strategic areas to address the challenges:
While the first half of FY24 was challenging, management anticipates a more supportive environment in the second half. Factors like favorable earnings seasonality, low net incremental energy cost growth, and efficiency gains from H1 FY24 Project Future initiatives are expected to bolster the company’s position. Despite these positive indicators, H2 FY24 earnings are likely to be below the levels of the previous year, leading to an anticipated decrease of more than 20% in EPS, HEPS, and pro forma HEPS for the full fiscal year.
As Pick n Pay recalibrates its strategies under new leadership, the challenges faced in H1 FY24 serve as a stark reminder of the volatility in the retail landscape. The company’s ability to adapt, innovate, and effectively navigate these challenges will be crucial in determining its future trajectory. Shareholders and industry watchers keenly await developments, hoping for a resurgence that will propel Pick n Pay back to its former glory in the South African retail landscape.
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