May 12, 2020 / 1:18 PM / 22 days ago

South Africa's Pick n Pay sees margin and profit pressure from COVID-19 lockdown

JOHANNESBURG (Reuters) - South Africa’s Pick n Pay Stores Ltd (PIKJ.J) said on Tuesday the COVID-19 pandemic is likely to hit its margins and profitability this year as lockdown measures prohibit the sale of some items including liquor, tobacco and clothing.

FILE PHOTO: A shopper is seen at a Pick n Pay store, ahead of a nationwide lockdown for 21 days to try to contain the coronavirus disease (COVID-19) outbreak, in Johannesburg, South Africa, March 25, 2020. REUTERS/Siphiwe Sibeko

The supermarket chain’s shares tumbled almost 14% to a 7-1/2 week low after it deferred its dividend for the year ended March 1 to conserve cash.

Trading conditions for South African grocery retailers were already difficult before the new coronavirus outbreak, with low economic growth, high unemployment, rising household costs and constrained consumer spending weighing on sales.

They are now facing new challenges in changing consumer behaviour, supply chain disruptions as well as restrictions on sales of liquor, tobacco and most general merchandise items.

“These categories make up approximately 20% of our revenues, and have relatively high margins compared with basic food and grocery lines,” Chief Executive Richard Brasher said during a webcast result presentation.

“The general reduction of overall consumer ability to spend is also a feature here. No one got wealthier during this crisis and more people sadly are unemployed as a consequence of this lockdown.”

Pick n Pay, which competes with Shoprite (SHPJ.J) and Spar Group (SPPJ.J), also anticipates additional costs from extra hygiene and social distancing measures, which are expected to hit profit in the new financial year.


South Africa slowly started lifting some restrictions on May 1 following a five-week lockdown to curb the spread of the virus that has killed 206 people and infected 11,350 in the country.

The retailer said while it experienced a spike in demand for personal hygiene, cleaning products, non-perishable foods and household items like toilet paper before the lockdown, customers have now reduced the frequency of their shopping trips.

Meanwhile, an expected advantageous shift in consumer spending from discretionary to non-discretionary products has not really materialized in South Africa as consumers’ salaries have either been reduced or not paid at all, it added.

Pick n Pay is also looking to save 1 billion rand ($54.88 million) over the next two years by cutting costs including opening smaller stores instead of big ones, Brasher said. He did not give further detail.

He said he had delayed plans to step down by now to help the retailer weather the pandemic.

Pick n Pay’s annual results to March 1 were not impacted by the coronavirus as restrictions started after its year end.

It reported comparable headline earnings per share (HEPS), the most widely used profit measure in South Africa, of 278.81 cents, down from 280.60 cents a year earlier. Group turnover rose 4.7%.

Growth in demand for online grocery sales, which has generally been slow in South Africa, accelerated as a result of the coronavirus outbreak. Online turnover surged 100% year-on-years since the declaration of a state of emergency in early March, the retailer said.

Reporting by Nqobile Dludla; editing by Jason Neely and Emelia Sithole-Matarise

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