Pick n Pay warning

Prominent analysts have warned that Pick n Pay will struggle to gain market share from Checkers and Spar, which makes it a risky investment.

Pick n Pay’s latest trading statement showed that the retailer was struggling to grow and compete against Shoprite.

Pick n Pay sales only grew 0.1% over the period. Like-for-like sales were slightly higher at 1.1%, while Pick n Pay South Africa sales increased 0.6% and 1.7% like-for-like.

It expects earnings per share (EPS), headline earnings per share (HEPS), and comparable HEPS for H1 FY25 to decrease by more than 20%.

Pick n Pay explained that its total sales lagged like-for-like sales because it closed numerous stores during the period.

In the first 21 weeks of the financial year, Pick n Pay closed 16 supermarkets, including four corporate stores and 12 franchise stores.

Despite the guided year-on-year earnings decline, the retailer expects full-year profit/loss before tax and capital items to significantly improve.

Pick n Pay added that the successful conclusion of the R4 billion rights offer in early August strengthened its balance sheet.

In 2024, Pick n Pay’s share price increased by 19%. It raises the question of whether there is more share price growth in store for Pick n Pay.

Analysts warned that while there can be a successful turnaround, investing in Pick n Pay comes with significant risk.

Devin Shutte from The Robert Group told Business Day TV that Pick n Pay has underinvested in their business for many years.

They are now playing catchup with Checkers with store formats, the look and feel of their supermarkets, and their distribution.

He said although Pick n Pay, under the leadership of Sean Summers, can turn the company around, it will not be easy.

He said remains to be seen whether the company can flourish again. “Even with the multiple recapitalisations, the execution risk is high,” Shutte said.

He added that consumers have moved to other retailers, like Checkers, and it will take a lot of work to lure them back.

Grant Nader from Benguela Global Fund Managers added that Shoprite Checkers and Spar continue to improve their offerings.

He added that Shoprite is aggressively rolling out new stores, and Spar is refocusing its efforts on South Africa.

“It is competitive on all fronts. This is a scale game where price and margin are important. The retailer with the biggest scale has the biggest advantage,” Nader said.

Compared with Shoprite, which is growing, Pick n Pay is shrinking, which puts it on the back foot. “They have less margin to play with. They are in a tough position,” he said.

While Boxer and the clothing business are good, Pick n Pay has many challenges. “It is risky, even at the current price,” Nader said.