South Africa

BUSINESS MAVERICK: Pick n Pay flags above-50% interim profit fall, cites alcohol and tobacco bans

Pick n Pay said on Tuesday 4 August that it expects interim earnings for the period to the end of August 2020 to fall more than 50%. That sent its share price down more than 5%. (Photo: Gallo Images / Luba Lesolle)

The day after rival Shoprite flagged flat earnings in the face of the Covid-19 pandemic, Pick n Pay said it expected interim earnings to fall at least 50%, with prohibition part of the cause.

The Covid-19 pandemic, and the lockdowns to contain its relentless spread, have had a mixed impact on retailers. At the top end of the retail food chain, Swiss luxury-goods group Richemont cited “unprecedented disruption” when it said sales for the April to June quarter tumbled 47%. Lower down the income market chain, Shoprite, Africa’s leading grocer, said on Monday its sales for the year to the end of June rose 6.4% and that it expected essentially flat earnings. 

In between the two, with its largely though far from exclusively middle-class client base, comes Pick n Pay. The company said on Tuesday 4 August that it expects interim earnings for the period to the end of August to fall more than 50%. That sent its share price down more than 5%. 

The company cited three main factors behind this expected slump in profits.

First, it noted that the “group was prohibited from trading in certain key product categories during Level 5… including alcohol, tobacco, clothing, general merchandise and hot foods. These categories make up approximately 20% of our revenues, with higher gross profit margins relative to basic food and grocery lines”.

Alcohol sales were allowed again from 1 June and then prohibition was slammed back in place on 12 July. 

So Pick n Pay’s earnings are among the mounting economic costs of the booze and tobacco bans. 

DTI’s widely panned ban on the sale of hot foods by grocery stores during the earlier lockdown stages also hit its bottom line. The company further cited increased costs linked to Covid-19 measures, including “appreciation bonuses” to staff in April and May who did the public a service by manning the tills and stocking the shelves. 

There are also one-off costs from a voluntary severance programme launched in March that was taken by more than 1,400 staff. 

Still, the company is hardly in meltdown — grocery chains are in a relatively sweet spot in the retail space as they mostly sell food. The likes of Richemont, with its Cartier jewellery and IWC watches, are not in such a position. Overall, the outlook for the wider sector outside of the grocery/supermarket space remains bleak, and that will have far-reaching consequences for South Africa’s dire economy. DM/BM

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