October 22, 2019 / 1:54 PM / 22 days ago

Low prices, cost cuts help Pick n Pay buck South African retail gloom

JOHANNESBURG (Reuters) - A focus on low prices and cutting costs helped drive a 9.5% rise in first-half earnings at Pick n Pay Stores Ltd (PIKJ.J), bucking the downward trend at other South African retailers and giving the biggest daily boost to its shares in 11 years.

FILE PHOTO: Workers repair a logo of South African retailer Pick n Pay in Johannesburg, South Africa, April 19,2018. REUTERS/Siphiwe Sibeko/File Photo

The supermarket chain, with more than 1,800 stores, is one of a handful of South African retailers to deliver both higher sales and margins in a market where consumer spending has been hit by higher value-added tax, fuel prices and unemployment.

Pick n Pay, which also sells clothes, reported on Tuesday a 6% rise in group turnover for the 26 weeks ended Sept. 1.

Like-for-like sales climbed 2.9%, led by demand for fresh foods, clothes and liquor across its Pick n Pay stores and budget chain Boxer in its home market.

Trading profit was up 12.5% to 1.2 billion rand ($81.4 million), with the trading profit margin rising to 2.7% from 2.6% in the same period last year.

“Value conscious customers, that’s the name of the game,” said group Chief Executive Richard Brasher, the former long-serving UK head of supermarket giant Tesco (TSCO.L).

Pick n Pay managed to restrict internal selling price inflation to just 2.2%, below general price and food inflation, it said.

Comparable headline earnings per share (HEPS) rose to 85.03 cents from a restated 77.67 cents a year earlier.

At 1342 GMT, shares in Pick n Pay were up 10.80% to 68.14 rand, their biggest daily gain since October 2008 and helping to lift South Africa’s general retail index .JGERE more than 4.2%. The stock earlier hit a three-month high of 69.56 rand.

“There was a lot of pessimism in the market with the economy battling, so much so everyone was probably a bit bearish and now it (Pay n Pay) surprised the market,” Cratos Capital trader Greg Davies said.

Elsewhere in Africa, however, Pick n Pay - like the continent’s largest supermarket chain Shoprite Holdings (SHPJ.J) - is grappling with weak currencies, especially in Zimbabwe and Zambia.

Its rest of Africa operation reported a 79.8% slump in profit, driven by falling earnings in those two countries.

Pick n Pay wrote down the value of its 49% equity investment in TM Supermarkets in Zimbabwe by 132.3 million rand to 50.4 million as a result of the local currency’s devaluation.

Reporting by Nqobile Dludla; Editing by Subhranshu Sahu and Mark Potter

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