South Africa's Pick n Pay narrows first-half loss as turnaround gains traction

JOHANNESBURG, Oct 26 (Reuters) - South African grocery retailer Pick n Pay (PIKJ.J), opens new tab reported a narrower headline loss in the first half on Monday on higher margins and tighter cost control, boosting confidence that CEO Sean Summers' turnaround plan is beginning to deliver results.

The country's No.2 grocer by southern Africa turnover is seeking to restore profitability and regain shoppers after years of market-share ⁠losses and weak store performance.

The group's headline loss for the 26-week period ended August 30 narrowed 32% to 299 million rand ($18 million), while trading profit rose 58% to 490 million rand.

Gross margin expanded 0.7 percentage points to 18.8%, supported by a better product mix and supply-chain improvements.

By 1134 GMT, shares were up 4.3% at 22 rand.

The retailer has been rebuilding profitability through cost cuts, store closures, a revamped fresh food offering and improved inventory management that has reduced stock holdings and freed up working capital.

It introduced more than 50 new and upgraded fresh lines this year, driving stronger category growth and increased customer participation in its fresh food offering, Summers said. "Customers ⁠are increasingly choosing Pick n Pay," he added.

He said the initial benefits of turnaround measures were beginning to show in the financial results, with significant further benefits set to flow over the coming 2-1/2 years.

CONSUMERS UNDER PRESSURE

Chief Financial Officer Tina Rookledge said the retail environment remained challenging, with consumers under pressure and food inflation at a 16-year low, meaning retailers had ⁠to boost traffic to drive up sales in value terms.

Summers estimated the conflict in the Middle East, which has inflated fuel costs, had cut sales growth by about 3%, with every 1% loss in sales growth costing the retailer roughly 140 ⁠million to 150 million rand in income.

Group turnover rose 2.4% to 60.5 billion rand, supported by 6.3% growth at value retailer Boxer (BOXJ.J), opens new tab, while sales at the core Pick n Pay business were broadly flat after strategic ⁠store closures over the past year.

The retailer also reached an agreement with labour unions on a new store labour model that will be implemented from November 1. Summers said the changes would improve staffing flexibility and costs.

($1 = 16.5804 rand)

Reporting by Nqobile Dludla; Editing by Tom Hogue, Sherry Jacob-Phillips and Jan Harvey

• Suggested Topics:

• Africa

Nqobile Dludla

Thomson Reuters

Nqobile is a Johannesburg-based reporter covering the South African retail, telecom and tech sectors. She has been a journalists for about 10 years. She joined Reuters in 2015 and has covered a variety of beats ranging from pharma, health to property and banking.