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Pepkor weathers tough SA market

Exits Zimbabwe.
Image: Nadine Hutton, Bloomberg
South African retailer Pepkor Holdings weathered weak consumer confidence in its home market and its clothing and general merchandise division took market share in the year through September.

Operating profit at the group’s clothing chains, which include Pep, climbed 3.7% in the year, even as high levels of unemployment and low economic growth constrained South African consumer spending, the Cape-Town-based company said on Monday.

Read: Pepkor’s annual results for the year ended September 2019

“You can only sell what you buy and we are still buying for proper growth, so that when things turn we will be there gaining more market share,” CEO Leon Lourens said.

Like other local retailers, the picture in the rest of Africa is tougher and Pepkor counted its Zimbabwe operations as discontinued as it exits that country, which is battling rampant inflation.

Earlier this month, Shoprite started a review of supermarket operations outside South Africa and said it would consider exiting certain countries if that would help reverse regional sales declines. Excluding its home market, Africa’s biggest grocer reported a 4.9% fall in third-quarter revenue.

Pepkor, which has operated in the rest Africa since 1995, isn’t planning to pull out of any other countries on the continent, Lourens said. Equally, it doesn’t plan to add to the number of stores beyond its main market, he said.

The company has faced several other challenges since majority owner Steinhoff International was thrown into turmoil almost two years ago because of an accounting scandal.

Pepkor took a R1.2 billion impairment on its building-material supplies business in the year. While the unit accounted for 13% of Pepkor’s revenue in the 2018 financial year, its profit plunged in the year through September and no longer warranted the related intangible assets on its balance sheet.

It’s not the first writedown for Pepkor. In May 2018 it took R511 million charge for a controversial management-incentive plan that predated its spinoff from Steinhoff in 2017. This cost Pepkor a further R80 million this fiscal year.

Steinhoff is looking at options for its pan-European discount variety retailer Pepco Group. While Pepkor previously said it would be interested in rejoining with that business, that is looking increasingly unlikely, Lourens said. Steinhoff is said to be considering the sale of about a quarter of Pepco through an initial public offering that could value the European retailer at more than 4 billion euros ($4.4 billion).

Pepkor would be interested in Pepco if it could get a majority stake at a price it could afford, but at this stage “it doesn’t look like that’s going to happen,” said Lourens. He doesn’t see Pepkor buying into a Pepco IPO.

© 2019 Bloomberg L.P.
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They’re doing their best to show good results under difficult trading circumstances, yet it is not revealed in the share price. Perhaps the drop in dividend paid?

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