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Pepkor ‘confident’ it will gain market share amid pandemic

As it continues to provide discounted products for babies and children.
The Pep and Ackermans retail chains are likely to find increasing appeal among cash-strapped consumers. Image: Waldo Swiegers, Bloomberg

South Africa’s largest non-grocery retailer Pepkor is “confident” that even during the Covid-19 pandemic it will continue to gain market share for baby and children’s clothing.

This is according to CEO Leon Lourens, who was speaking during Pepkor’s interim results presentation for the six months ended March 31.

“Given the state of the economy and consumer spending we are confident that we are well-positioned to gain market share in the post-Covid-19 [period],” Lourens says.

Although the group experienced similar challenges to other retailers with the spread of Covid-19 and the subsequent lockdown, it will continue to provide consumers with “defensive discount and value positioning” products, he says. This applies especially to baby and children’s clothing, which are large revenue contributors for its Pep and Ackermans retail chains.

Lourens says responding to changes in consumer behaviour will be critical to the future developments of the group moving forward.

It will seek to cater to evolving consumer needs and preferences.

“E-commerce and online activity will become more prevalent for certain market segments and this presents omnichannel opportunities for the group to leverage its expansive store footprint and diversity of brands,” he says.

Group revenue rose 6.5% to R37.5 billion in the period under review, with Pep outperforming the market with its focus on discount clothing.

Historic challenges

The group says it does however face macro challenges that hinder it from achieving more revenue.

“Dealing with all the current circumstances we often forget that we were in a difficult environment before all of this [the pandemic] began. We were recessionary in the last quarter of last year. There was load shedding and unemployment was high, so the country was not going in the right direction,” he says, adding that the six months under review represented a constrained environment.

April trade was affected by lockdown Level 5 restrictions, but strong trade was reported during May when the regulations were eased to Level 4.

“It can be attributed to pent-up demand and the payment of social grants,” Lourens says.

Debt collections exceeded expectations for March and April, especially for its personal loans microlender Capfin, but the group anticipates this area will be negatively impacted going forward.

For the reporting period, group debtors costs jumped to R868 million from R273 million previously, partially due to increased bad debts.

The group says it will not pay out dividends this year. It declared a dividend amounting to R721 million in its year to end-September 2019.

“Heightened levels of prudence applied by the board and the focus on liquidity preservation and allocation of resources, [means] it is not expected that a full-year dividend will be declared for the financial year 2020,” it says.

Headline earnings per share decreased by 13.6% to 44.3 cents per share. Operating profit increased by 17.2% to R40 billion.

Pepkor share price over the past five years

Concerning the pandemic, the group says it continuously assesses various scenario plans and conducts stress tests to ensure that it is taking appropriate financial actions to reduce costs, conserve cash and improve flexibility in its capital structure during these unprecedented times.

Market commentator David Shapiro also expects Pepkor’s retail stores such as Pep and Ackermans to do exceedingly well as consumers become cash-strapped as a result of job losses and pay cuts.

“Consumers are now expected to be more cost-conscious and Pepkor has always done well in positioning [these] stores for the lower end market.”

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What Lourens seem to miss is the fact that the independent national retailers below Ackermans and Pep who have cumulatively over 1000 stores are better priced …… they will gain market share from ACK and Pep.

The debt of over R14 billion is very concerning but with the likes of the CFO in the business there is HOPE.

End of comments.

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