Pick n Pay Stores Ltd. said profit fell 51 percent as South Africa’s second-biggest grocer struggled to regain lost market share and as consumer demand weakened in the continent’s largest economy.
Net income dropped to 550.6 million rand ($60 million) in the 12 months through March 3 from 1.11 billion rand a year earlier, the Cape Town-based company said today in a statement. Profit missed the 587.6 million-rand median estimate of 10 analysts surveyed by Bloomberg. Earnings per share excluding one-time items fell 30 percent to 1.11 rand, while sales rose 7.2 percent to 59.3 billion rand.
The retailer has lost market share to competitors such as Shoprite Holdings Ltd., Africa’s largest grocer, which posted a 19 percent gain in profit for the six months through December. South African consumer confidence was at a nine-year low in the first quarter of 2013 amid a 24.9 percent unemployment rate and as rising fuel and electricity costs accelerated inflation to the upper limit of the government’s 3 percent to 6 percent target range.
“Pick n Pay has been talking about their turnaround plans for some time, but it is very much a long-term plan,” Michael McLeod, an analyst at Avior Research, said in a phone interview from Johannesburg. “We will have to wait and see when this translates into margin expansion. With the economy as it is, coupled with the performance of its peers, this is not an easy time to try and implement a turnaround.”
Pick n Pay shares rose 0.9 percent to 41.66 rand by the close in Johannesburg and are down 7.9 percent in the year to date. The FTSE/JSE Africa All Shares Index was up 1 percent.
“I am optimistic we can improve the underlying margins of the business,” Chief Executive Officer Richard Brasher said in a telephone interview. “We don’t need a new strategy, we just need to deliver on the one we’ve been talking about.”
Keeping shelves full, being competitively priced, opening new shops and ensuring that customers have a “happy shopping experience,” will be the focus, Brasher said. Pick n Pay opened 107 stores in fiscal 2013 and plans to open about the same number this year, he said. The retailer hired Brasher, the former head of Tesco Plc’s U.K. unit, from Feb. 1 to help revive growth.
Sales in eight African countries outside of its home market were 2.7 billion rand, the company said. With year-on-year gains of about 35 percent, this region has “strong potential to develop into a second engine of growth,” Brasher said. “Africa growth can complement our core business, but we won’t be blinded by the opportunities there not to focus on South Africa.”
Profit from continuing operations fell 28 percent. The sale of Pick n Pay’s Franklins supermarket chain in Australia to Metcash Ltd. was completed on Sept. 30, 2011, earning the South African company 438.4 million rand after tax last year.