Pick n Pay shakes up model, focuses on future to counter R3.2bn loss

Pick n Pay Chairperson Gareth Ackerman. (Photo: Gallo Images / Netwerk24 / Jaco Marais)

By Georgina Crouth

27 May 2024

The retailer, which also posted an interim loss last year, is on track to achieve profitability with its new plan over the medium term, says CEO Sean Summers – and the market seems to be buying it: the share price was up by 6.3% in midday trade.

Pick n Pay is zoning in on its leadership structure, underperforming stores and operating model, and attending to its critical funding needs, after posting dismal results on Monday, 27 May.

The retailer has reported a R3.19-billion loss for the year ending 25 February 2024, which dims the otherwise stellar performance of the group’s discount Boxer business.

Group turnover has grown by 5.4%, driven by Boxer, which is up 17.3%, and the Pick n Pay Clothing standalone stores, up 17%.

But gross profit was down by 3.1% year on year and trading expenses rose by almost 12%, attributable to what it said was substantially higher debtors’ provisioning and R307-million of employee restructuring costs.

Trading profit was down by 87.4% to R385-million as PnP posted a R1.5-billion trading loss and Boxer made a R1.9-billion profit (up from R1.8-billion in FY23).

Most of its losses were caused by flat sales (+0.3%) at PnP, trading expenses exceeding sales growth, and a contraction of gross profit margins.

Adding to its woes is a 198.8% increase in net interest paid (to R701.8-million), due to higher gearing and increased interest rates. Pick n Pay is highly leveraged.

Combined, a loss before tax and capital items of R1.4-billion and a trading loss that triggered a R2.8-billion non-cash impairment on Pick n Pay corporate stores has resulted in a total loss of R3.2-billion for the year.

The board has not declared an FY24 dividend.

Positives

On the bright side, customers are highly attracted to its discount retail, clothing and e-commerce offerings. Boxer not only grew sales by 17.3% but opened 50 new stores. It now has a portfolio of 477 stores.

Pick n Pay Clothing has opened 58 stores and delivered market-leading sales growth from its standalone stores.

Online sales grew by 74.4%, mostly driven by the 102.3% YoY growth in on-demand platforms asap! and Pick n Pay groceries on Takealot’s Mr D app.

Unbowed, the retailer has announced a raft of measures to stem the bleeding and will be recapitalising the business through a R4-billion rights offer, in which the founding Ackerman family will relinquish their majority stake in PnP in the middle of the year.

Gareth Ackerman will step down as chairperson after 14 years in the position.

The Ackerman family have also committed R1-billion towards the recapitalisation, and three of them — Gareth, Suzanne and Jonathan Ackerman – will remain on the board.

Pick n Pay CEO Sean Summers. (Photo: Supplied)

Revealing the retailer’s six-point “back-to-basics” plan, which entails paying off debt, scrapping the Qualisave brand and converting them to PnP stores, plus closing 112 loss-making stores, CEO Sean Summers said they were focusing on PnP’s future, not its past.

Separate listing

Boxer and franchisees will be central to this turnaround plan.

The thriving Boxer discount division is set to be separately listed on the JSE this year, with the group hoping to raise between R6-billion to R8-billion in the process, and smaller corporate stores will be sold to franchisees.

About 45 stores will be converted to franchise stores.

The broader strategy includes resetting its store estate by creating smaller but more profitable Pick n Pays; converting stores to franchises or Boxer stores; improving its offering to drive sales by focusing on products and services; optimising the operating model, and leveraging relationships.

The group hopes to break even by next year and return to profitability by 2027.

The turnaround strategy was already well under way, Summers said.

‘Best approach’

Pick n Pay’s lower-income Boxer stores boost turnover Pick n Pay Chairperson Gareth Ackerman. (Photo: Gallo Images / Netwerk24 / Jaco Marais)

Gareth Ackerman told investors on Monday that Pick n Pay needs a vibrant management team in place to succeed in the turnaround.

“The board believes this is the best approach to reinvest in our company, recapitalise the business and reduce debt. This will enable Pick n Pay’s management to start investing back into the business.

“Now more than ever, we need to give the management the support they need to complete the renewal they have started.”

Summers says the focus is on the future, not the past. Using the analogy of a rear-view mirror, he said nobody in the group was allowed to focus on what went wrong, except in the sense that a rear-view mirror gives one context to understand how they got to this position.

“For everybody else in this organisation, we are clearly focused on the road that is ahead. It is true that we can do nothing about yesterday. We can only deal with today and tomorrow.”

PnP’s sometimes acrimonious relationships with its franchisees are in the past, he insisted, saying franchisees are fundamental to the group’s success. After spending “quite a bit of time” with franchisees since his appointment, relationships are “stronger than ever”.

Franchisee tussles

Franchisees have also been brought back into the PnP fold operationally, which they had wanted to do for a long time.

Franchisees were better positioned to make stores bringing in under R10-million per month economically viable, he said, which, at a corporate level, was proving to be a challenge.

Pick n Pay’s tussles with its franchisees have been widely reported, with the AJP Group (headed by John Baladakis) losing in court in February after running into arrears due to contractual changes.

The retail giant then lost eight lucrative stores belonging to the Baladakis group to competitor Shoprite.

Its first black franchisee, George Senosha, who introduced the retailer to the township market in the 1990s, has accused PnP of “destroying” him after it seized his R30-million store and called in a R6.6-million debt from another store.

Summers, a long-time company man who was reappointed CEO in October last year, says the retailer’s issues with its franchisees are in the past and they have been brought back under the group.

“I can say without any shadow of a doubt that, at the moment, our relationships with franchisees in the main are better than they’ve been for a long time.”

PnP has 198 underperforming stores, he said: in the 112 stores where they have run out of options, they will have to retrench “some” people.

The group is currently in discussions with the CCMA and has set aside R307-million for the process, but not all of it will be for retrenchment packages — some will be to compensate employees for their transfer from corporate stores to franchises, which offer fewer company benefits. DM

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Business Maverick

Positives

Separate listing

‘Best approach’

Franchisee tussles