Pepkor, a prominent retail group in South Africa, faces significant challenges as it navigates through a tough economic landscape. The company’s financial results for the year ending on September 30, 2023, reveal a drop in profits owing to various economic hurdles that have impacted both consumers and operations.
The company reported a noticeable decline in profits due to severe financial strain on consumers caused by high living costs, unemployment, and ongoing disruptions in social grant payments. Particularly, the crippling effect of electricity load shedding emerged as a substantial impediment to economic activities. Pepkor highlighted a staggering increase in lost trading hours, reaching a whopping 845,000 hours, attributing diesel costs surging by 69% to R141 million for the year to the impact of load shedding.
However, Pepkor didn’t remain passive in the face of this adversity. The group heavily invested in alternative power sources, ensuring that 100% of PEP and Ackermans stores were adequately covered. Despite these measures, load shedding continued to hamper customer movement, activity, and spending power, affecting Pepkor’s revenue streams.
The escalation of crime, including burglaries and armed robberies targeting stores, posed threats to employee and customer safety. In response, Pepkor implemented additional security measures, albeit at increased costs, to safeguard its assets and employees.
While Pepkor did experience market share gains in certain categories like Babies, Adult, and Home products, challenges persisted in product supply, notably in cellular handsets. Nonetheless, the company maintained a significant market share in the sale of prepaid handsets in South Africa.
Despite revenue growth of 7.7% from R81.2 billion to R87.4 billion, Pepkor’s earnings per share experienced an 8.2% decline to 149.2 cents, while dividend per share dropped by -12.9% to 48.1 cents. The group attributed these reductions to elevated debtors’ costs and increased net finance costs.
The implementation of the group’s credit interoperability strategy in South African retail brands showed promising results, contributing to an increase in the group credit sales mix from 8% to 10% year-over-year.
Pepkor acknowledged the persisting challenges in the South African consumer and operating environment, especially disruptions in port operations affecting stock inflows. Despite fluctuations in sales performance, the company highlighted resilience during periods of increased market liquidity, such as payment days for social grants, salaries, and wages.
Looking ahead to FY24, Pepkor anticipates a reduction in product inflation to mid-single-digit levels, supported by improved sourcing strategies and deflation in factory gate prices. These strategies aim to enhance customer affordability and subsequently boost sales volumes. The group remains committed to implementing cost-reduction measures.
The road ahead remains uncertain for Pepkor as it grapples with economic challenges, load shedding, and operational hurdles. However, the company’s strategic investments in alternative power sources and its focus on market share in various categories exhibit its determination to navigate through adversity. Pepkor’s resilience and forward-looking strategies aim to mitigate the impact of ongoing challenges, fostering hope for a more stable and prosperous future amidst South Africa’s complex economic landscape.