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Pick n Pay to spend R2bn on revamping its stores

Retailer Pick n Pay planned to spend R2 billion on revamping some of its existing shops while it looked for more shop space for expansion elsewhere, chief executive Richard Brasher said.

The group reported growth in headline earnings per share of 28 percent to 177.26c for the full year to the end of February.

The average estimate of 13 analysts surveyed by Bloomberg was for adjusted earnings per share of 171c.

Pick n Pay lifted profit before tax to R1.205bn, up 44.7 percent on the previous year. This caused Pick n Pay Stores shares to rise as much as 6.39 percent, before closing 4.62 percent up at R53.88.

The group saw an improvement in the profit before tax margin, which improved from 1.3 percent to 1.8 percent of turnover, and an improvement in the gross profit margin by 30 basis points from 17.5 percent to 17.8 percent. The improvements occurred alongside investment in the customer offer through Brand Match and a stronger smart shopper programme.

“I think there are plenty of places where Pick n Pay can serve the community where we are currently not serving… we can increase the amount of space this year between Pick n Pay and Boxer, with its format extensively based in KwaZulu-Natal and the Eastern Cape,” Brasher said.

Once a favourite of investors and customers, Pick n Pay has lost ground to rivals, such as market leader Shoprite in the last few years, after failing to invest in new stores and supply chain and paying out much of its profit as dividends.

New boss

But the 2013 appointment of Brasher, the former UK head of Tesco who put in place a plan to cut costs, is widely expected to help the company become a better competitor.

Pick n Pay has closed 40 stores over the last two years under Brasher’s turnaround plan.

The group added 113 new stores during the 12 months, bringing the total to 1 189, while net interest payments declined 40.2 percent after the repayment of R700 million of debt.

In its results, Pick n Pay said trading expenses had increased only 3.8 percent on a like-for-like basis, well below consumer price inflation.

Pick n Pay said improvements were from a more efficient and effective store operating model, supported by progress across the entire supply chain.

“Our subdued turnover has more to do with what we have done,” Brasher said.

“We have closed a number of shops in the past and we did not open as much space this year as we did in the year before, both of which our sales number has been a bit softer, but I think those were the right things to do,” Brasher said.

“Pick n Pay has stuck to its guns and trimmed the excess fat,” Kyle Rollinson, an analyst at Avior Capital Markets, said.

The final dividend was up 27.1 percent to 98.5c with the total dividend for the year up 28 percent to 118.1c per share, maintaining the dividend cover of 1.5 times headline earnings per share.

Consistently stronger cash balances enabled the company to repay R700m in medium-term domestic medium-term note programme debt. This delivered a 40.2 percent reduction in net interest charges.

“This result marks the completion of the first stage of Pick n Pay’s long-term recovery plan,” it said.

“Two years ago Pick n Pay was in a precarious position. We are now stronger and more stable. We are ready for stage two of our journey,” Brasher said.

On its operations outside the country, the group said it saw good growth outside with segmental revenue up 13.6 percent and segmental profit up 34.6 percent.

The group opened two stores in Zambia, eight in Namibia and refurbished four TM Supermarkets in Zimbabwe and rebranded three to the Pick n Pay brand. The group will open its first store in Ghana in 2016. – Additional reporting by Reuters and Bloomberg

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