- South African chain to partner with Nigeria's AG Leventis
- Full year sales advanced 8.2% after opening 175 new stores
Pick n Pay Stores Ltd. announced plans to enter Nigeria through a partnership with a local company as the South African retailer extends its reach on the continent following a 26 percent rise in full-year earnings.
The supermarket and clothing chain has agreed to partner with Lagos-based AG Leventis & Co. to enter Africa’s largest economy, it said in a statement on Tuesday. Leventis has experience dealing with on-the-ground challenges in Nigeria such as transportation, getting products into stores, and property, Pick n Pay said.
“We need to further extend our Africa business,” Chief Executive Officer Richard Brasher said in a presentation in Cape Town. Pick n Pay will hold 51 percent of the operation in Nigeria, which will tap the experience of its local partner, he said.
Pick n Pay’s planned entrance to Nigeria comes after two of its South African competitors decided that having operations in the country wasn’t worth the effort. Truworths International Ltd., a clothing retailer, said in February it would close its two remaining Nigeria stores after struggling to get stock into the country and cash out. Food and apparel chain Woolworths Holdings Ltd. announced the closure of its three stores in the country in 2013.
“A lot of people rush into things and then maybe rush out of them,” Brasher said. “We needed to partner with an experienced local partner, which I believe we’ve found.”
Pick n Pay has already expanded into African markets such as Botswana and Zimbabwe and plans to open stores in Ghana next year. Profit before tax outside of South Africa rose 20 percent in 2016. The entry into Nigeria, which is “something that we thought long and hard about,” will be a measured process, Brasher said.
“Today we’re just announcing that we’re going, we haven’t packed our bags yet and we haven’t been down to the bank to get our travelers’ checks.”
Pick n Pay is working to reduce costs and operate more efficiently in its home market, where rising food inflation has presented a challenge to growth. The company restricted selling-price rises to 3.1 percent over the year, compared with 7 percent inflation in February, the last month of the reporting period. Sales advanced 8.2 percent to 72.4 billion rand ($5 billion) for the year, helped by 175 store openings, while the trading-profit margin improved to 2.1 percent, from 1.9 percent in 2015.
The shares rose 0.1 percent to 69.58 rand as of 12:03 p.m in Johannesburg, valuing the company at 34 billion rand.
South African retailers are facing headwinds including weak domestic consumer confidence, rising interest rates and a falling rand, which has declined 16 percent against the dollar over the past 12 months. The central bank forecasts economic growth for South Africa this year of 0.8 percent, which would be the slowest pace since a 2009 recession.
Earnings per share, excluding one-time items, rose 26 percent to 2.24 rand in the year through February, Pick n Pay said. The median estimate of seven analyst estimates compiled by Bloomberg was for adjusted earnings per share of 2.18 rand.