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Pick n Pay expects full-year headline earnings to rise 15% to 20%

| Retailer trading results

The firm says it is developing strong pillars for future growth by improving its customer offer across its formats

Pick n Pay’s share price spiked briefly on Monday after the company said it expected to report a double digit increase in full-year earnings. But the share price slipped gradually, unable to buck the falling trend in listed retail stocks.

In a trading statement, the group said headline earnings a share for the year to February 2017 would increase 15%-20% from of 224.04c in the previous corresponding period. Turnover growth would increase 7%.

The group said the results demonstrated progress in delivering a balanced and sustainable recovery.

“Greater operating efficiency is evident in the strong discipline on cost, more centralised supply chain and higher productivity in stores. The turnover growth reflects a difficult trading environment, alongside some internal disruption from refurbishments and store closures which are improving the quality of the estate,” Pick n Pay said.

The firm said it was developing strong pillars for future growth by improving its customer offer across its formats.

Shoprite’s full-year results released in August 2016 showed an increase in turnover of 14.4%. Africa’s biggest retailer, under the leadership of Pieter Engelbrecht since January 1, reported a 17% increase in diluted HEPS.

Spar, which reported its full-year results in September, said headline earnings a share grew 22.1% and turnover had increased 23.8%.

Woolworths, a retailer with operations both in food and clothing, said in its full-year results also released in August that headine earnings a share went up 23.2%, while turnover rose 16.4%.

Grocery retailers have not been immune to the downturn in the economy. While full-year results held up relatively well, interim updates have shown the amount of strain there is on margins. The level of competition and discounting has intensified. Pick n Pay announced in March it would slash prices on more than 1,300 items at a cost of half-a-billion rand.

Woolworths has also decreased price points on some of its goods.

“We aim to consistently offer our customers incredible quality at great prices and recently reduced our prices across a number of items including steak, mince and rotisserie chicken, which has proved a successful and popular strategy,” said Woolworths group head of communication, Susie Squire.

“There are, however, circumstances which lie outside our control such as drought which can have an impact on price adjustments,” she said.

Downgrades by S&P Global Ratings and Fitch are likely to add more woe to the sector.

The moves by the agencies are expected to have implications for consumer confidence, which is already low. Further decline will mean less spending. Additionally, interest rates may increase, which could result in higher debt-to-income ratios.

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