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Pepkor annual profit falls but market share grows

On consumer hunt for value.
Image: Waldo Swiegers/Bloomberg

South African retailer Pepkor Holdings is hopeful of a quick recovery in profitability, its CEO said on Monday, citing a rise in market share driven by price-conscious shoppers even as the coronovirus crisis sent annual profit down 34%.

The budget clothing and furniture retailer’s stores were barred from trading during an initial five-week lockdown early this year, resulting in about R5 billion ($325.2 million) in lost sales, with the group unable to sell its full range of merchandise range until June.

However, increased social grant payments that helped shoppers to satisfy their pent-up demand when stores reopened in May served to offset a sales slump in the third quarter of its financial year to September 30.

This lifted overall annual sales by 3.6% to R63.7 billion ($4.15 billion), with the company reporting continuing sales momentum since the end of its financial year.

Consumer focus on less discretionary and more affordable products resulted in “substantial” market share gains in clothing, footwear, homeware and cellular, said group CEO Leon Lourens.

However, full-year headline earnings per share (HEPS)- the main profit measure in South Africa – from continuing operations fell 34.4% to 62.6 cents and Pepkor swung to a R3 billion loss from a profit of R2.1 billion after writing down the value of its businesses by R4.8 billion.

Lourens told investors he was “very confident and bullish” that the group can get to at least 2019 profitability levels “quite soon”.

“It’s the first year in many that we haven’t been able to grow our profits and that is something we want to set right as soon as possible. Hopefully, with a bit of luck, this year we’ll be able to do.”

Pepkor said it reduced net debt by R6.9 billion to R7.1 billion, thanks to strong cash generation, good credit book collections and a R1.9 billion share sale.

The retailer, majority owned by Steinhoff, also said that expansion into East Africa is no longer feasible and it will close its 13 stores in Uganda by the end of December.

Hurt by the devaluation of currencies in countries such as Angola, Zambia and Zimbabwe, Pepkor said it is not opening any new stores outside of South Africa or allocating more capital as part of consolidation plans until market conditions turn favourable.

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