Pepkor sales and revenue well ahead of 2019

Demonstrating its ability ‘to achieve strong and consistent sales growth despite volatile trading conditions’.
Sales at Pep and Ackermans increased by close to 43% in January, compared with the weak January of 2021. Image: Supplied

Pepkor notified shareholders in a trading update on Thursday that revenue increased to R22.8 billion in the last quarter of 2021, some 1.3% better than in the same three months of 2020.

Management noted that revenue actually improved by 1.8% when excluding the revenue figures from the John Craig clothing and footwear chain, which was sold early in 2021.

In addition, Pepkor explained to shareholders that the growth in sales and revenue was achieved under very trying circumstances, alluding to difficult trading conditions as a result of sluggish economic growth, high unemployment and the still lingering effects of the civil unrest in KwaZulu-Natal and Gauteng.

Read:

“The group has now reopened 450 (82%) out of the total 549 stores affected by the civil unrest. The reopening of the remaining 99 stores is delayed by infrastructure and shopping centre rebuilds,” according to the trading statement.

“The resultant insurance claims process relating to material damage and business interruption is progressing with further payments from the insurers expected during the current financial year.”

Ahead of 2019

Like many companies that publish updates or results, Pepkor also supplied a comparison with the relevant period in 2019 to give shareholders a “normal” base of comparison untainted by Covid-19 business interruptions.

“Over a two-year period, compared to the comparable quarter ended 31 December 2019, the group is pleased to have achieved sales growth of 10.9%. This demonstrates Pepkor’s ability to achieve strong and consistent sales growth despite volatile trading conditions,” reported management, adding that …

“whilst trading was weak in October 2021, it normalised in November 2021 and strengthened in December 2021.

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“The improved trading trajectory is very encouraging in contrast to the challenging operating conditions faced in the wake of a weak economy with record high levels of unemployment,” it says.

Pepkor disclosed that the positive sales trajectory of the last quarter of 2021 (which is the first quarter of its current financial year) continued in January.

Total sales at Pep and Ackermans increased by close to 43% in January 2022 compared with (the weak) January 2021, while the speciality division saw sales improving by more than 30%. Pep stores in the rest of Africa did equally well and sales increased by 20% in constant currency terms.

However, management notes that in some of the business units the performance was inflated by the shift in back-to-school dates to January from February in the prior year.

Cash sales

The sales figures show that Pepkor’s stores are mostly reliant on cash business. Cash sales for the group increased by 3.2% and contributed 93% to total group sales.

Credit sales increased by 2.8% and remains a very small contributor to group sales, at only 7%, according to management’s analysis.

“The group’s approach to credit granting remains conservative,” it says.

“The Connect credit book, which facilitates credit sales in the JD Group, was largely maintained at the R1.6 billion level (on a gross basis). The level of non-performing loans improved.

“The Tenacity credit book, which facilitates sales in the clothing and general merchandise segment, increased marginally to R3.3 billion from R3.2 billion a year ago. The level of non-performing loans improved.”

Management indicated that it was satisfied with the trading performance during the first four months of the new financial year, and “especially pleased with the growth rates achieved over the two year period since the onset of Covid-19”.

Outlook

“Although the economic outlook remains challenging, Pepkor has over many years been able to achieve strong results and demonstrate resilience under these conditions,” according to the trading statement.

“We remain encouraged that the relaxation of Covid-19 restrictions and increased tourism and economic activity will support growth and a reduction in unemployment levels going forward.

“Whilst global supply chain issues have stabilised to a degree and inventory levels are satisfactory, the expectation is that uncertainties will persist into 2022. Higher levels of price inflation are expected for the next summer season.”

That Pepkor remains optimistic can also be seen in its continuing expansion programme.

During the quarter to end December 2021, the group opened 102 new stores – and its growth plans remain on track to open over 300 new stores in the current financial year.

Pepkor’s share price has recovered strongly from its low of below R10 when the first Covid-19 lockdown hit – just about two years ago – to the current R22.51.

The share is rated on par with that of its closest competitor, Mr Price, both trading on a price-earnings ratio of 16.9 times.

That things are going well at Pepkor will also be good news for Steinhoff shareholders, due to the importance of Pepkor to the struggling Steinhoff.

Read: Steinhoff: It’s just about settled then (for some)

Steinhoff is due to announce its results for the year to end September 2021 on Friday (January 28), after opting to conclude several outstanding legal issues.

Pepkor, with the same year-end, already published its final results in November 2021.

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