Pick n Pay shares fall as it continues to lose customers

Pick n Pay Stores’ shares fell the most in two years after first-half sales growth failed to convince investors the South African grocer is doing enough to regain market share.

Net income advanced 37% to R261.9-million in the six months through August, while same-store sales growth climbed 4% the Cape Town-based company said in a statement on Thursday. Pick n Pay raised the interim dividend 32% to 19.6 cents a share.

“While Pick n Pay has been strong in top-line income, when I look at like-for-like sales and strip out inflation I see volumes down 2.5%,” Alec Abraham, an analyst at Sasfin Securities in Johannesburg, said by phone. “That suggests Pick n Pay is still losing customers. It’s not moving in the right direction quickly enough.”

South African retailers have struggled this year as accelerating inflation and unemployment of more than 25% have constrained spending. Shoprite Holdings, South Africa’s biggest food retailer, posted slowing full-year profit and sales growth in August. Pick n Pay last year hired chief executive Richard Brasher, a former director at Tesco, to lead a turnaround of the company after costs spiraled and market share fell.

“I’m always happier if underlying like-for-like volumes are up,” Brasher said by phone. Stock availability remains a challenge and “if I managed to actually put everything on the shelf that I ordered, then I would sell a lot more.”

Slowing growth
Pick n Pay shares dropped as much as 6.5%, the biggest intraday decline since October 5 2012, and traded 4.2% lower as of 12.33pm in Johannesburg. The stock has lost 2.4% this year, compared with a 19% decline at Shoprite and a 6.8% fall at Woolworths Holdings.

“In South Africa, the low income side of food retailing is very competitive and is where Shoprite is strong,” Abraham said. “My concern is that Pick n Pay is struggling to regain market share in the upper income side, which has been its core business.”

Pick n Pay opened 46 supermarkets and closed five in the six-month period, bringing its total to 1 117 outlets, and spent R110-million improving existing stores. The company plans to set up more than 80 new outlets in the second half, accelerating its store-opening program, it said.

The company’s like-for-like sales in Africa outside its home market climbed 7.8%. Pick n Pay, which closed its Mauritius and Mozambique franchise operations last year, plans to open stores in Ghana and is “close to completing our assessment of the opportunity in Nigeria.” – Bloomberg

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