JSE-Listed Retailer Pepkor Reports Strong Interim Earnings

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Pep

JSE-listed retailer Pepkor, which owns household brands including PEP, Ackermans, Tekkie Town, The Building Company and Incredible Connection, delivered another strong set of interim results underpinned by a robust growth strategy. During the period under review, Pepkor also opened 144 new stores and completed its strategic acquisition of well-established Brazilian value retailer, Grupo Avenida, which currently operates 130 stores. The group generated R4.1 billion cash during the period.

Like many other companies, Pepkor’s performance over the last two years has been deeply distorted by a myriad of interruptions and crises, such as COVID-19 related restrictions, loadshedding, on-going supply chain challenges, the KZN floods and civil unrest. Pepkor was one of the first retailers to recover from COVID with very strong performance in the prior year. Against this backdrop of a very high base, the group is very satisfied with its performance during the period. Measured over a two-year period, which eliminates the above interruptions and volatility, the group achieved strong growth in sales and market share expansion across product categories.

The group reported a 28.3% rise in headline earnings per share (HEPS) to 91.5 cents a share for the six months to end-March. HEPS is South Africa’s main profit gauge.

The group also delivered a 3.3% increase in revenue to R42 billion and operating profit swelled by 19.1% to R5.7 billion.

This commendable set of results point to the group’s defensive business model and unparalleled position in the South African discount and value sector. With a retail footprint of more than 5 500 stores on the continent, Pepkor trades as close to its customers as possible to make a positive difference in their lives – 25% of PEP stores trade where no other clothing stores are located. This ease of access at prices customers can afford is evidenced in Pepkor’s market share gains of 189 basis points for the period [According to the Retailers’ Liaison Committee (RLC) and Growth from Knowledge (GfK)].

“Over a comparable two-year period, the group achieved exceptional sales growth of 15.4% with substantial market share gains. Pepkor’s business model and unique market positioning continue to underpin organic growth with store openings and format expansion, a trend that is set to continue,” Pepkor CEO, Leon Lourens said.

“We opened 144 new stores (versus 108 stores in the comparable period) and we’re on track to surpass this number in the second half of the year with an additional 205 new stores. Taking a three-year view, Pepkor opened 830 new stores, which also plays a big role in sustaining job creation in South Africa. We strongly believe this illustrates the organic growth opportunities that still exist.”

The clothing and general merchandise segment continues to be the largest contributor to group revenue (65.7%) and operating profit (81.8%). Across PEP and Ackermans, we achieved 3.4% sales growth (+12.5% over a two-year period).

Lourens added, “In the current landscape it is even more important than usual that we provide our customers with products that are affordable. We are proud of the fact that 97% of products sold at PEP are cheaper than the competition and that, for example, PEP offers a complete school uniform at R20 less than it cost two years ago. This is testament to the hard work of our teams to strengthen PEP’s pricing power.”

The success of Pepkor’s business model is evidenced by market share gains across all product categories over the two-year period. In the clothing, footwear and homeware (CFH) market, market share increased by 130 basis points. This includes gains of 274 basis points in schoolwear, 100 basis points in babies and 259 basis points in homeware. In branded footwear, market share grew by 243 basis points while the group increased its share of the consumer and electronic goods market by 562 basis points,  264 basis points in appliances, and 334 basis points in cellular.

In the furniture, appliances and electronics category, sales increased by 8.1% (+25.8% over a two-year period). This is really a remarkable number on a high base as The JD Group gains significant market share. Operations in the building materials category have been successfully rationalised and consolidated, resulting in an increase in sales for The Building Company of 0.2% off this new base (+13.1% over a two-year period). Off the prior base before consolidation, sales decreased by 1.6%.

All categories have performed well off a high base and are well-positioned to continue to leverage key consumer trends, including demand for household goods and consumer electronics, digitisation, work/school-from-home and home improvement trends.

“Consumers will remain under pressure for the rest of the year, and we’re concerned about how rising inflation and increasing levels of unemployment will further impact consumers. As a group, we remain vigilantly focused on doing what we can to continue offering accessible, affordable products. We’ll continue to leverage the organic growth opportunities in the second half of the year, by opening more stores than in the first half and more than in the comparable period, bringing our total number of new stores up to 350 for this year, which is an even bigger number than last year,” said Lourens.

“While global supply chain uncertainties persist, shipping costs appear to have stabilised and may trend downwards. For us, ensuring customers can access the products they want remains a priority. This commitment is illustrated through the dedicated teams that are working hard to ensure resumption of operations in PEP’s Isipingo distribution centre by the end of May, albeit on a limited basis initially. We are also concluding an investment into our Hammarsdale distribution centre, which will increase our capacity with 120 000 sqms.

As a group, we’re optimistic about the rest of the year as trade continues to normalise. Together with our valued teams across the business, we have everything in place to continue executing on our growth strategy and making a positive difference in people’s lives.”

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