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Turnaround plan expected to boost Pick n Pay earnings

| Retailer trading results

Pick n Pay is reaping the benefits of its turnaround plan. Having cut costs, closed underperforming stores and improved its supply chain and information technology, full-year headline earnings per share are expected to rise 20%-30% for the year to end February compared with the year before.

"The result demonstrates good progress across all areas of the business," said the retailer. "It delivers on the group’s determination that its improved performance should be customer-led as well as cost-driven."

In its trading statement, Pick n Pay said the group had restricted its selling price inflation to 3.1%. This is below average food inflation of 5.3% for the same period, as measured by the consumer price index.

Avior Capital Markets analyst Kyle Rollinson said that the growth in earnings was roughly in line with expectation.

"Management continues to deliver on the turnaround strategy. The numbers are more than decent, especially considering the environment," he said.

Conditions in the retail sector are now the toughest they have been in a long time. Inflation is rising, wage increases are minimal, employment is low, and growth is depressed. Consumers are also highly indebted.

In its interim results, released late in February, Shoprite reported an 8.8% rise in turnover while diluted headline earnings per share grew 8.9% to 403c.

Absa Investments retail analyst Chris Gilmour said Pick n Pay’s results were exactly what the market needed to see.

"They’ve shown some very good growth. The rise in turnover shows that they are taking market share from somewhere, and that somewhere is probably Shoprite."

Pick n Pay’s group turnover growth of 8.2% for the year is the strongest delivered for several years, higher than the 6.1% growth delivered.

Despite the great numbers, Pick n Pay stores share price ended on Monday 1.13% lower at R70.13 on the JSE. "I wouldn’t pay too much attention to the share price. It is the most expensive in the retail sector. It’s not unsurprising to see a pull back," Mr Gilmour said.

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