By: Shaun Jacobs – Daily Investor

In a trading statement for the 52-week period that ended 25 February 2024, Pick n Pay said it expects the company to post a loss of between R3.14 billion and R3.38 billion for the 2024 financial year. 

This loss comes despite a revenue increase of 5.4% for the period, with a like-for-like revenue increase of 2.9%. 

The company said the anticipated loss was entirely attributable to the performance of the Pick n Pay Supermarkets business. The Group’s Boxer and Pick n Pay Clothing businesses remain highly profitable. 

It further explained that the expected results have been negatively impacted by gross profit margin contraction, trading expense growth exceeding sales growth in Pick n Pay Supermarkets, and various impairments. 

Boxer stores saw decent performance, with a 17.5% increase in revenue. However, the like-for-like increase was only 8.1%.

Pick n Pay stores’ revenue was poor, falling by 0.2%. Due to the Pick n Pay stores’ underperformance, the group suffered a massive R2.8 billion impairment loss. 

The impairment loss was aimed at loss-making and underperforming stores, some of which will be closed or converted to other formats, and some remain open. 

The poor revenue performance and the massive impairment loss pushed the group’s performance deep into negative territory, with a loss per share between R6.37 and R6.86. 

Even when the impact of the R2.8 billion impairment is disregarded, the group would still report a loss of between R2.28 per share and R2.81 per share.

The company said there were also some additional contributing factors to the expected loss, such as –

Once-off costs of R423 million, including R116 million duplication of supply chain costs during the Longmeadow / Eastport handover and R307 million employee restructuring costs;

Additional trade receivables provisioning of R0.4 billion, reflecting the difficult trading environment in South Africa, including a R0.2 billion provision increase in Botswana;

Incremental net debt service costs of R467 million from increased gearing and higher interest rates.

The company also continues to struggle with the lack of a stable electricity supply across its stores in the past financial year, with its total diesel costs to run generators expected to increase to R698 million.

Tough turnaround ahead

Pick n Pay has had a dismal performance over the last few years. Its share price has plummeted over 75% from its highs in 2018.

The retailer’s challenges reached such concerning levels that it kicked out former CEO Pieter Boone and replaced him with Seam Summers.

Summers is a Pick n Pay stalwart who worked for the company from 1974 to 2007. He became managing director in 1996 and CEO in 1999.

During his tenure as CEO, Summers made Pick n Pay the clear grocery market leader in South Africa.

He achieved an average annual revenue growth rate of 16% per annum – much higher than Shoprite’s 11% over the same period.

With Summers back at the helm, the management team is employing a ‘store-to-store’ strategy to return momentum to the company.

Summers told Daily Investor he wanted to return to the retailer because Pick n Pay has always been the “love of his life” despite leaving it 15 years ago.

“It distressed me as much as the chairman to see the situation that Pick n Pay ended up in,” he said.

Despite the company’s current situation, Summers is optimistic that there is still space in the market for Pick n Pay.

“I think if we apply our minds correctly, we can come back and carve back its place in the marketplace,” he said.

“It’s about putting that passion back into the business, and that passion has to be shared by everybody. Every associate in the business should feel that same love and sense of belonging.”

While Summers believes it is his job to revitalise the company, he said it is important to be realistic.

He estimated that it would take the market two years to notice a significant turnaround in the company.