FILE PHOTO: Workers repair a logo of South African retailer Pick n Pay in Johannesburg

Low prices, cost cuts help Pick n Pay buck South African retail gloom

By Nqobile Dludla

JOHANNESBURG (Reuters) - A focus on low prices and cutting costs helped drive a 9.5% rise in first-half earnings at Pick n Pay Stores Ltd, bucking the downward trend at other South African retailers and giving the biggest daily boost to its shares in 11 years.

The supermarket chain, with more than 1,800 stores, is one of a handful of South African retailers to deliver both higher sales and margins in a market where consumer spending has been hit by higher value-added tax, fuel prices and unemployment.

Pick n Pay, which also sells clothes, reported on Tuesday a 6% rise in group turnover for the 26 weeks ended Sept. 1.

Like-for-like sales climbed 2.9%, led by demand for fresh foods, clothes and liquor across its Pick n Pay stores and budget chain Boxer in its home market.

Trading profit was up 12.5% to 1.2 billion rand ($81.4 million), with the trading profit margin rising to 2.7% from 2.6% in the same period last year.

"Value conscious customers, that's the name of the game," said group Chief Executive Richard Brasher, the former long-serving UK head of supermarket giant Tesco.

Pick n Pay managed to restrict internal selling price inflation to just 2.2%, below general price and food inflation, it said.

Comparable headline earnings per share (HEPS) rose to 85.03 cents from a restated 77.67 cents a year earlier.

At 1342 GMT, shares in Pick n Pay were up 10.80% to 68.14 rand, their biggest daily gain since October 2008 and helping to lift South Africa's general retail index more than 4.2%. The stock earlier hit a three-month high of 69.56 rand.

"There was a lot of pessimism in the market with the economy battling, so much so everyone was probably a bit bearish and now it (Pay n Pay) surprised the market," Cratos Capital trader Greg Davies said.

Elsewhere in Africa, however, Pick n Pay - like the continent's largest supermarket chain Shoprite Holdings - is grappling with weak currencies, especially in Zimbabwe and Zambia.

Its rest of Africa operation reported a 79.8% slump in profit, driven by falling earnings in those two countries.

Pick n Pay wrote down the value of its 49% equity investment in TM Supermarkets in Zimbabwe by 132.3 million rand to 50.4 million as a result of the local currency's devaluation.

($1 = 14.7382 rand)

(Reporting by Nqobile Dludla; Editing by Subhranshu Sahu and Mark Potter)

First Published: 2019-10-22 09:38:37
Updated 2019-10-22 17:09:01

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