Pick n Pay’s trading statement for the year to March received a mixed reception, with bulls on its recovery rushing in to buy and those less confident expressing reservations.

Pick n Pay’s results, the second under CEO Richard Brasher, are set to meet analysts’ expectations on profit growth when released on April 21. Earnings, reports the retailer, will come in 20%-30% higher year on year, at the 25% average of the two extremes on the consensus forecast of 13 analysts polled by INET BFA.

The latest estimates build on a 43% rise in earnings in the previous year and, notes Pick n Pay, represent the juncture at which it has "substantially completed the first stage of its strategic recovery plan". Among second phase promises are "accelerated improvements in operating efficiency" and a "dynamic approach to expansion".

Evan Walker, a portfolio manager at 36One Asset Management, remains unconvinced by Pick n Pay’s upbeat tone. One of his key concerns is about sales growth of 6.1% reported by the retailer in its trading statement.

"Sales growth was a shocker. It was a very poor number and indicates that Pick n Pay continued to lose market share."

An indication of market share loss are recent performances by Pick n Pay’s competitors. Shoprite grew its year-on-year South African supermarket sales 12% in the six months to December last year. After adjusting for internal food inflation sales volumes were up 6.8%. Topping the company sales growth list over the same six months was Woolworths, which lifted food sales 14.1%. Adjusted for internal inflation, growth came in at 8.4%.

Adding to Mr Walker’s concerns was the trend in Pick n Pay’s sales growth which reflected a fall from 6.8% in the first half of its year to 5.5% in the second half.

Stanlib retail analyst Theresa Heath also expressed concern about the sales growth trend. "Pick n Pay launched Brand Watch in the second half," she pointed out.

Brand Watch is a campaign to lure customers by ensuring its prices on 1,000 branded items do not exceed the lowest level offered by its four major competitors.

The analysts have bought into Pick n Pay’s recovery, their forecast calling for earnings growth of 31% and 29% respectively in the next two financial years. If they are accurate, Pick n Pay’s still priced-for-perfection price:earnings of about 31 is arguably justifiable.

However, to achieve earnings growth envisaged by analysts, far stronger top-line sales growth will be essential, said Mr Walker. "This (year) was the second year earnings growth was driven by cost cutting. It will become harder to continue cost cutting on an ongoing basis."

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