RETAILING: Pick n Pay Affected By Consumer Spending
Recent Western Cape Business News
Turnover for the Pick n Pay Group for the six months ended 31 August 2010 increased 6.0% to R25.2-billion. Group like-for-like turnover was up 2.1% for the period, while trading profit dropped 0.4% to R720-million. Gross profit margin fell from 18.0% to 17.8%, due to aggressive pricing of basic commodities and increased franchise participation. The overall decrease in trading profit has been mitigated by enhanced operating efficiencies and improved cost management.
Headline earnings per share at 90.17 cents was 7.2% down on last year and the interim dividend per share at 37.00 cents for Pick n Pay Stores Limited and 17.94 cents for Pick n Pay Holdings Limited were down 6.9% and 7.1% respectively.
CEO Nick Badminton said that over the past six months, the company had seen some of the toughest trading conditions in the history of the group, in an economic climate slow to recover from the global recession, a very competitive environment and low inflation.
“We have seen customers under pressure in shopping more frequently but buying less per visit. Small stores are outgrowing larges ones and growth is clearly stronger in the lower income areas. Competitors are rolling out new space aggressively and there has been significant pressure on margins with food inflation below CPI.”
Pick n Pay and Boxer combined increased turnover by 6.0% for the period. Pick n Pay’s corporate internal food inflation fell from 9.8% in August 2009 to 0.1% in August 2010. On average, Pick n Pay food inflation was 1.0% for the past six months (vs 12.5% for the equivalent period last year), against 4.4% for CPI.
“Notwithstanding the fact that consumer spending remains subdued, we have seen strong growth in certain areas, notably Private Label, Clothing and Liquor. In the case of Private Label, we have seen 11% growth and this now accounts for 14% of packaged food sales, with further innovation to come.
We have also experienced encouraging growth and an increase in customers in the LSM 4 -7 market, with a strong performance from Boxer and a profit turnaround in the Pick n Pay stores converted from Score.
“During the period we opened one new Pick n Pay corporate supermarket, five Pick n Pay franchise stores, three liquor stores, six clothing stores and one Boxer Build. We are on track to open a further 40 stores across all formats, including 15 supermarkets by the end of the financial year.
Badminton said that despite the challenges of the six months, there were a number of very positive developments as the Group maintains its strategic focus and continues to transform the business.
“Our SAP implementation has been concluded, resulting in a fully integrated system across the business, with improved in-store disciplines, more efficient business processes and timely information for performance management. This has been a mammoth task: an investment of more than R500 million with 6,500 active users and 55,000 orders placed daily.
“Throughout the business, the implementation of extensive cost control measures has resulted in meaningful cost savings, with more to come. On an annualised basis, we have saved R90m in goods not for resale.
Turning to Africa, Badminton said: “As part of our expansion into Africa, the opening of our first store in Zambia has been positively received and is trading well. We have professional logistics people involved, and 55% of our stock is locally drawn.
“We continue to move forward with our expansion into Africa and are pleased with the progress made to date. We have confirmed openings for four more stores in Zambia over the next 12 months, in addition to the 17 stores we have in Namibia, 12 in Botswana, seven in Swaziland and one each in Lesotho and Zambia. In addition to Zambia we plan to open stores in Mauritius, Malawi and Mozambique.
The Group made the decision to sell its Australian operation, Franklins, and has accepted an offer of AUD215.0 million from Metcash. The sale is subject to approval from the Australian Competition and Consumer Commission (the ACCC), whose decision is expected in November 2010.
“We are committed to the sale of Franklins, and should the ACCC not give the go-ahead we will sell the Franklins stores, either individually or in groups,” said Badminton. “Franklins has been treated as a discontinued operation and its results have been reflected separately from those of continuing operations. Turnover in Franklins for the period of AUD417.5 million was down 3.5%, with operating losses incurred of AUD11.3-million against a profit of AUD1.8-million in the corresponding period last year.”
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