Pick n Pay share price rises as its restructuring plans gather pace

Pick n Pay share price rises as its restructuring plans gather pace

PICK n Pay Stores yesterday said it would report big losses in its year to February 25 results due to write-downs and large once-off costs, but its shareholders appeared surprisingly upbeat as the share price gained up to 8% at one stage yesterday.

The iconic South Africa grocery chain said in a trading statement yesterday its earnings would be impacted by a R2.8 billion non-cash asset impairment of its core Pick n Pay Supermarkets stores.

The group forecast that diluted headline loss per share would be between -280.39 to -227.75 cents, massively down compared with 263.2c the previous year. The results are expected to be released on Monday.

With regard to the share price, Umthombo Wealth equity analyst Nomtha Ngumbela said much of the operational weakness in the Pick n Pay branded stores was anticipated by the market given the historical performance that prompted the need for the turnaround strategy.

“As the market looks towards this and its progress, management indicated that the implementation of the two-step recapitalisation plan is progressing well and both the rights offer and spinning out of the Boxer business should occur during the course of this year.

“At an anticipated R4bn, the injection of cash will provide a material pay down towards the company’s debt pile, with current net debt totalling R6.1bn,” said Ngumbela.

Pick n Pay’s directors said that of the R2.8bn impairment, R1.8bn was an impairment for some loss-making stores that will be closed or converted to Pick n Pay franchises or Boxer stores.

As an indication of how Pick n Pay might be losing market share in South Africa, rival Shoprite Group reported a 13.9% increase in interim merchandise sales to December 41, while Pick n Pay’s interim sales increase to the end of August was 5.3%.

Pick n Pay said yesterday that another R1bn impairment in the annual results would relate to under-performing stores that would remain open, but which would be improved over time.

Additional factors to the forecast 2024 loss included R698 million in diesel costs, debt services costs of R467m due to higher gearing and raised interest rates.

There were also once-off costs of R423m, R307m of which was for staff restructuring and R116m for duplication of supply chain costs, as well as additional trade receivables provisioning of R400m, reflecting the difficult trading environment in South Africa, and including a R200m provision increase in Botswana.

The group said its losses were at the Pick n Pay Supermarkets business. The Boxer and Pick n Pay Clothing businesses were “highly profitable”. This was also reflected in yesterday’s sales update.

Total sales increased 5.4% for the 52 weeks ended February 25, 2024, with like-for-like growth of 2.9%. Pick n Pay South Africa sales growth was -0.2% (+0.2% like-for-like), while Boxer South Africa sales growth was 17.5% (8.1% like-for-like).

Pick n Pay Clothing sales growth was 17% (7.7% like-for like), while Pick n Pay Online delivered sales growth of 74.4%, driven by improvements in the asap! platform and its Mr D partnership. The Rest of Africa division lifted sales 10.1% and 12.5% on a constant currency basis.

Earlier this year a two-step recapitalisation plan was announced, including a R4bn rights issue and the use of these funds, as well as from the proposed listing of Boxer, to cut debt. A debt restructure plan to September 2025 had since been agreed with lenders.

“The group is progressing well towards implementing the recapitalisation plan. The terms and conditions … are being refined in consultation with the board and its advisers, and the final plan remains subject to approval by the board, shareholders and regulators,” Pick n Pay’s directors said yesterday.

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