Pick n Pay plummets on loss warning and CEO switch-up

Pick n Pay’s share price dropped by as much as 14% following a disappointing trading update and news that CEO Pieter Boone had been booted from the company.

The retailer informed shareholders that it experienced a particularly challenging first half of the 2024 financial year.

This was driven by a weak consumer environment, load-shedding costs, and heightened competitive intensity.

In particular, the company’s Pick n Pay South Africa supermarkets segment took a knock.

While the company saw positive sales growth in the 26-week period that ended 27 August 2023, its earnings were severely impacted.

Earlier this year, the company released a trading update warning shareholders that it expected to report a loss at the earnings, headline earnings, and pro forma headline earnings levels for H1 FY24. 

At the time, the company also advised that the expected loss was primarily due to restructuring costs, duplication of supply chain costs due to its Longmeadow/Eastport Distribution Centre handover, and net incremental energy costs due to load-shedding. 

Today, the retailer said it expects incremental abnormal costs of approximately R565 million for the period, consisting of:

• Total diesel costs to run generators of R396 million, and net incremental energy costs of R190 million
• R116 million duplication of supply chain costs during the Longmeadow/Eastport handover
• R259 million of employee restructuring costs, primarily due to the Voluntary Severance
• Programme (VSP) and Junior Store Management restructuring, which were concluded during the period. 

Previously, the retailer said it did not expect to report an H1 FY24 loss, excluding these incremental abnormal costs. 

However, it told shareholders this morning that the company no longer expects to make a profit excluding these costs. 

The retailer said this is due to the company’s gross profit margin for the period falling below its previous expectations. 

Pick n Pay expects the following changes to its earnings:

“This was a consequence of a highly promotional trading environment, which impacted both sales growth and gross margin, and included the impact of supplier incentive income for the period being finalised at below our previous expectation.”

The retailer also said its management expects to face continued headwinds in the latter half of the year but anticipates the H2 FY24 earnings outlook to be materially stronger than H1 FY24.

However, the company reassured shareholders that its balance sheet remains strong. 

“Group net debt at period end was R3.8 billion versus R3.7 billion at 26 February 2023. The stable gearing was primarily the result of strong working capital management and prudent capital allocation during the period,” it said.

In addition to reporting its expectations for a loss, Pick n Pay informed shareholders that its current CEO, Pieter Boone, would be stepping down and its former CEO, Sean Summers, would take up the role again.

“Unfortunately, in a very difficult environment, the performance of our core Pick n Pay business has been very challenging over the past months and has not met expectations,” chairman Gareth Ackerman said.

“Pieter accepts that the Board has decided on a change in leadership. He leaves us with our heartfelt thanks and best wishes for the future.”

Summers will take over as group CEO to turn around the performance of the group’s “Pick n Pay retail core engine while ensuring the continued success of the Group’s growth strategies”. 

However, this did not reassure shareholders, as Pick n Pay’s share price fell by over 13% following the release of today’s trading statement.

Sasfin Wealth senior equity analyst Alec Abraham told Daily Investor the potential loss in the trading period was well-guided by management, and the market reacted in the way it did because the loss was announced.

In addition, the seemingly hasty change of CEO may be interpreted as an acknowledgement of what many investors are thinking – “Pick n Pay is in trouble and doesn’t seem to have an answer to steady the ship”.

He said Summers has many pros and cons, and there’s no guarantee that he will be able to turn things around for the company.

“And what’s more, the decline has been over time, and the solution will also take time – there’s no quick fix.”