Pick n Pay First-Half Profit Gains as Retailer Cuts Costs

Pick n Pay Stores Ltd. (PIK) rallied the most in five years after South Africa’s second-biggest grocer said first-half profit climbed as it reduced costs, added new stores and its market share decline slowed.

The shares gained as much as 9.4 percent, the most since October 2008, and closed 7.8 percent higher at 45.53 rand in Johannesburg. More than 5 million shares traded, or 8.8 times the three-month daily average.

The retailer is working to regain customers from competitors such as Shoprite Holdings Ltd. (SHP), Africa’s largest grocer, and has been trying to cut costs and improve its supply chain amid a downturn in consumer confidence. The outlook for South African household spending remains uncertain as high wage settlements are counterbalanced by low employment, high debt levels and rising prices, Reserve Bank Deputy Governor Francois Groepe said on Oct. 11.

“The results certainly exceeded my expectations, but the company is not out of the woods yet,” Alec Abraham, an analyst at Afrifocus Securities in Johannesburg, said by phone. “Pick n Pay needs to not just stem the hemorrhage, it needs to gain market share.”

Net income increased 6.2 percent to 192 million rand ($19.5 million) in the six months through August, the Cape Town-based company said today in a statement. Earnings per share excluding one-time items gained 14 percent to 40.81 cents, while sales rose 6.2 percent to 30.1 billion rand.

More Headwinds

“I’m encouraged, but far from satisfied -- we can do better,” Chief Executive Officer Richard Brasher said in a presentation in Cape Town. “We are determined to control our costs and invest in growth.”

Pick n Pay will open 64 new stores in the second half, Brasher said in the presentation. That compares with 44 new outlets opened across all formats during the first six months of the year, alongside nine closures. While the company has faced “a few more headwinds than perhaps this time last year,” it stemmed some losses in market share, Brasher said.

The gap in year-on-year sales growth rate between Pick n Pay and the total market was 4.8 percent in March to August 2012. That gap narrowed to 0.7 percent this year, Brasher said in the presentation.

Like-for-like sales growth in stores was 4 percent in the first half, compared with 3.2 percent in the same period a year ago. That’s a “strong indication” market-share losses are being eroded, the company said.

Brasher, the former head of Tesco Plc’s (TSCO) U.K. unit, joined the retailer in February to lead a sales-growth revival. The company has cut about 400 support office jobs as it seeks to lower operating costs. The savings from this will be felt in the next year, Brasher said.

“For too long we put too much in and got too little out,” he said. “When we add people we need to make sure it’s done efficiently.”

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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