Big Pick n Pay problem

Pick n Pay’s share price plummeted 8% on Wednesday following a trading update which revealed the retailer is struggling with sales volumes.

Pick n Pay South Africa stores saw no sales growth in the first half of this year, and taking its internal selling price inflation into account, sales declined by almost 10%.

Boxer South Africa stores saw significantly more sales growth than its Pick n Pay stores, growing by 15.4% over the reporting period.

However, Boxer’s like-for-like growth was only 3%. Like-for-like refers to the sales growth recorded by the same number of stores a year ago.

These numbers show that Pick n Pay is struggling to grow its sales and that it is losing market share to competitors.

Pick n Pay said the slower sales momentum resulted from reduced promotional activity because of the additional operating costs related to load-shedding.

Sasfin Securities’ David Shapiro said that apart from load-shedding and increased costs, there are still worries at Pick n Pay.

“On the sales side, things were flat, disappointing the market. Even the Boxer number was flat on a like-for-like basis,” he said.

First National Bank Wealth and Investments’ Wayne McCurrie echoed Shapiro’s view, saying all retailers suffer from load-shedding and increased costs.

“The real problem with Pick n Pay is that they did not get any sales to offset the additional cost pressures,” he said.

He pointed out that their flat sales revenue amidst internal food inflation of 9.5% reveals significantly declining sales volumes.

“That is not just a result of the sluggish economy. Competitors are taking market share from Pick n Pay,” he said.

Pick n Pay chairman Gareth Ackerman said they have made good progress in delivering their Ekuseni strategic growth plan.

The plan seeks to build on the Pick n Pay brand and accelerate growth in key strategic areas, such as Boxer, clothing, and online.

However, Shapiro said investors are growing tired of waiting for the results to filter through to the company’s top and bottom lines.

“It will take time for Pick n Pay’s turnaround plan to stick. In the meantime, investors are getting impatient and decide to look for value elsewhere,” he said.

McCurrie added that when you consider that Pick n Pay produced such poor results while trading on a 14 price-to-earnings (P/E) ratio, he is surprised the share price is not down more.