Pick n Pay hammered despite good results

Pick n Pay’s financial results for the six months ended 28 August 2022 revealed an 11.5% year-on-year increase – from R46 billion to R51.3 billion.

The retailer increased its gross profit margin from 18.2% to 19.4%, which helped to grow its profits from R348.8 million to R453.3 million.

However, the previous period’s 18.2% gross margin was off a low base due to 2021’s looting in KwaZulu-Natal and Gauteng.

Pick n Pay’s average gross profit margin since 2017 was 19.3%, and the group has been able to recover its margin to its 5-year average.

Pick n Pay grew its South African turnover by 5.4% and its turnover from the rest of Africa by 17.9%.

It was the first period since Pick n Pay implemented its new Ekuseni strategy, prioritising the following elements.

  • Changing its supermarket format as part of its customer value proposition. The group now has two formats – its traditional Pick n Pay supermarket and Pick n Pay Qualisave aimed at the low-to-middle income consumer.
  • Accelerating store layout of its Boxer and Pick n Pay clothing stores.
  • Improving efficiency through what the company calls project Future, a 3-year initiative to cut costs by R3 billion. 

Pick n Pay Clothing continued to gain market share with 14.8% sales growth and opened 28 new stand-alone stores. 

Group liquor sales grew 36.2%. Seventeen new liquor stores were added, taking the total to 646 stores.

The company declared an interim dividend of 44.85 cents per share, up 25.3% from last year, in line with pro forma HEPS.

Online sales grew 82%, primarily through Pick n Pay asap!, and the partnership with Mr D will further grow this segment.

Pick n Pay CEO Pieter Boone said he was pleased with the progress achieved across Pick n Pay and Boxer over the past six months.

Pick n Pay revenue
Pick n Pay gross profit margin

Share price hammered

Despite the good set of results, Pick n Pay’s share price was hammered and declined around 9% on the day.

The share price decline perplexed many investors who saw the company’s results as satisfying.

Wayne McCurrie from FNB Wealth and Investments said Pick n Pay’s results were good, but the market did not think it was good enough.

“I was surprised by the share price weakness,” McCurrie said. “The share has a high rating by the market, but it did not seem that high given the 50% increase in earnings.”

“I would have expected the share price to be flat or down a little following the results, but not a 9% decline.”

Apart from the lofty expectations of the retailer, another reason for the share price decline may be the short- and medium-term outlook.

Pick n Pay CFO Lerena Olivier highlighted that there is a lot of uncertainty in the macroeconomic environment.

The retailer incurred an additional R110 million in energy costs over the half-year reporting period because of load-shedding in July and August.

With continued load-shedding, Pick n Pay expects further headwinds in the second half of its financial year.

Olivier added that inflation would continue to play a role, and higher fuel costs would also hurt the business.

“We are working hard to mitigate these but have cautioned that they will impact our second-half earnings,” she said.

Pick n Pay share price in October 2022