Double-digit profit growth for Pick n Pay as turnaround plan pays off

Pick n Pay has continued to reap the benefits of its turnaround strategy, positing double-digit profit growth in the six months to end-September after an intensive focus on supply costs.

SA’s second-largest grocer by market capitalisation, headed by former Tesco UK boss Richard Brasher, said on Tuesday it had improved its gross profit margin to 19.8% from 18.8% — a measure of revenue minus cost of goods sold.

It had also managed to restrict internal selling price inflation to 2.2% during the period, which refers to its rise in the direct cost of the goods it sells. The company has expanded its fresh foods offering in recent years, even as it consolidated its supply base, saying this was paying off particularly in SA.

Group trading profit increased 12.5% to R1.2bn, while headline earnings per share rose 17.5% to 91.28c.

“In this environment, retailers have found it difficult to balance their two key objectives: delivering solid sales growth while maintaining profit margins,¨ Brasher said in a statement. “I am very pleased that we have succeeded in growing both our sales and our profits.” 

The company became more efficient by simplifying its product range and cutting waste, which enabled it to support customers during difficult economic conditions, he said.

Trading profit from its SA segment increased 16.4% year on year, with the company upping its interim dividend 9.5% to 42.80c a share.

Pick n Pay has about 1,858 stores, including Boxer stores and TM Supermarkets in Zimbabwe. Hyperinflation in Zimbabwe and tough consumer conditions in Zambia weighed on the group’s results, with its rest-of-Africa division's contribution to group profit before tax falling 79.8% to R27.5m.

Group income from value-added services, such as ticket sales and banking transactions, also boosted its performance, with income rising 16.1% year on year. During the period Pick n Pay launched a portfolio of insurance products in partnership with insurer Hollard, having rolled this out at 25 stores.

Pick n Pay said it had seen encouraging results to date, and would expand this offering to more stores over the next 18 months.

The company’s share price jumped 10.26% to R67.81 as of 10.30am on Tuesday, a more than two-month high.

gernetzkyk@businesslive.co.za