Pick n Pay Beat Profit Estimates as Lower Costs Boost Growth

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Pick n Pay Stores Ltd. reported a rise in full-year profit that beat analyst estimates as the South African supermarket chain cut costs from its distribution network, opened more stores and repaid debt.

Earnings per share excluding one-time items gained 28 percent to 177.26 cents in the year through February, the Cape Town-based company said in a statement on Tuesday. The average estimate of 13 analysts surveyed by Bloomberg was for adjusted earnings per share of 1.71 rand. The shares gained 4.6 percent to 53.88 rand by the close in Johannesburg, wiping out losses for the year and valuing the company at 26 billion rand ($2.2 billion).

“Pick n Pay has stuck to its guns and trimmed the excess fat,” Kyle Rollinson, an analyst at Avior Capital Markets, said by phone. “Even with driving efficiencies, it still has to show how it will go out and get market share and this in a South African market that is under significant pressure.”

The supermarket chain appointed former Tesco Plc executive Richard Brasher in 2013 to lead a turnaround of the company after profit slumped. Changes include an overhaul of its structure to focus on a more centralized distribution network, which has helped reduce costs and ease the pressure of muted consumer spending. South African shopping chains have been struggling amid unemployment of about 25 percent and high levels of personal debt.

Power Cuts

Shoprite Holdings Ltd., South Africa’s biggest grocer, said in February that rolling blackouts are its biggest concern for coming months as shoppers stay away and companies are compelled to pay for backup power. Pick n Pay’s utility costs climbed 12 percent in the period as diesel use and generator maintenance costs spiraled due to power cuts, the company said.

Pick n Pay added 113 new stores during the 12 months, bringing the total to 1,189, while interest payments declined 40 percent after the repayment of 700 million rand of debt. The company raised the full-year dividend by 28 percent to 1.18 rand. Sales rose 6.2 percent to 67.6 billion rand.

The company, which recently established a warehouse dedicated to online shopping near Cape Town, may also install similar offerings in Johannesburg and Durban to increase online product availability in those cities, Brasher said by phone. Online sales climbed about 30 percent in the year.

The grocer also plans to double its express, or smaller stores to 100 by the end of Feb. 2016 and to focus on the fresh food at those outlets, which are attached to BP Plc petrol stations, he said.

In Africa outside of Pick n Pay’s home market, revenue climbed 14 percent as the company opened two stores in Zambia and a net five in Namibia. The retailer will open its first store in Ghana in 2016 as “markets outside South Africa remain a potential second engine of growth.”

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