Analysts say recent trading statements from rivals Shoprite and Massmart may point to a recovery for the retailer.
But Nedbank Securities analyst Syd Vianello said yesterday his earnings forecasts would need to be revised down. "Pick n Pay's sales volumes appear to be flat, which could indicate like-for-like sales were down while the competition has grown its comparable store sales," he said.
In April, SA's second-largest supermarket chain, Pick n Pay, posted a decline in headline earnings per share of 15% in the year to 29 February, as investment costs ate into profit.
The company has invested heavily in restructuring over the past few years. Chairman Gareth Ackerman said in April the company would ramp up growth in the lower end of the market, and he believed the company had turned the corner thanks to its restructuring initiatives.
Vianello, however, said it would take time for the company's initiatives to bear fruit. "They have pinned their hopes on the Smart Shopper (loyalty programme). The real success or failure of the programme will become apparent in a year's time, when we have comparable data."
The company, however, has some believers in its turnaround strategy. Abdul Davids of Kagiso Asset Management said the outlook for Pick n Pay had improved and that its initiatives would result in a "major earnings recovery".
Davids said Pick n Pay had become complacent over the past decade, resulting in significant market share losses. "An investment of R100 in Pick n Pay from calendar year 2000 would have grown to R733 (including dividends) by the end of April 2012. In contrast, an investment in Shoprite would have grown to a staggering R2,843 (also including dividends)."
But Davids believes the company has done all the right things, including selling Franklins, its struggling Australian business, and streamlining its procurement functions.
"The various employee cost saving initiatives and the benefits of successful centralised distribution centres have the potential to boost Pick n Pay's margins over the long term," Davids said.
Although some analysts have expressed concern that the company still does not have a CEO after Nick Badminton resigned in February, Davids said the appointment of a new CEO was imminent. Increased competition from Massmart's Cambridge Food stores and Food Lover's Market have also been cited as concerns for the retailer.
Source: Business Day
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