Pick n Pay expects half year profit to plunge 60% despite growth in core retail sales

SOUTH AFRICA – Pick n Pay, supermarket chain store in South Africa has warned that its half year earning will drop by as much as 60% due to business restrictions and high costs of operating triggered by the COVID-19 pandemic.

The company expects that headline earnings per share, the main profit measure that strips out certain one-off, nontrading items, could fall in a range of 50%-60% to between 34.01c and 42.51c in the 26 weeks to the end of August.

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Pick n Pay’s first-half performance which began on 2 March 2020 was almost entirely marred by the Covid-19 restrictions, in particular the State of Disaster which began on 15 March 2020.

Trade restrictions imposed by the South African government, and by other jurisdictions across southern Africa, impacted up to 20% of the group’s revenue.

Sales were also impacted by reduced trading hours and limits on the number of customers in stores to uphold physical distancing requirements, and by temporary store closures following the identification of positive Covid-19 cases among staff.

Against this background, the retailer’s turnover increased 2.6% year-on-year, with like-for-like growth of 1.0%. Turnover from South African operations increased 3.4%, with like-for-like growth of 1.7%.

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Restrictions imposed meant that Pick n Pay could not sell higher-margin goods like liquor, clothing and general merchandise at one point or another during the ongoing lockdown which lead it to have a negative growth of 47.5% in liquor and tobacco sales.

However, its core retail sales including food, groceries and general merchandise grew 8.7% year-on-year (6.4% like-for-like), with 9.9% growth in South Africa (7.6% like- for-like).

Trade restrictions imposed by the South African government, and by other jurisdictions across southern Africa, impacted up to 20% of the group’s revenue.

But it was not only the ban of high-margin products that ate into Pick n Pay’s earnings. The retailer said it incurred R150 million (US$9m) in additional costs as a result of the Covid-19 crisis.

These include additional safety and hygiene costs of R80 million (US$4.825m), a R50 million (US$3m) appreciation bonus paid to 50 000 front-line staff, in recognition of their essential service under difficult circumstances, and security and communication costs of R20 million (US$1.2m).

The group also had once-off costs of R100 million (US$6m) related to its voluntary severance programme which affected 1 4000 employees. Pick n Pay said the reduction of its staff was meant to make the group more competitive and more sustainable.

“Over this period, the Group has successfully pursued two primary goals: feeding the nation in a safe and reliable way as an essential provider of food and groceries, and delivering on our long-term plan to build a leaner, more agile and more modern business, attuned to the needs of our customers.

“Although Group sales and earnings have been negatively impacted by the pandemic and the measures taken by government to contain it, we are proud of our achievement against both objectives in a challenging time,” said indicated Pick n Pay.

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