The Finance Ghost — the lowdown on AVI, Richemont and Pick n Pay

An income statement of this shape can only be achieved through efficient operations and a commitment to profitability rather than scale at all costs. AVI is one of the more respected companies on the JSE and this shows you why.

The food and beverage businesses continue to drive AVI forward, with the exception of I&J. Entyce Beverages led the way with 18.2% growth, Snackworks achieved 6.4% and I&J could only manage a decline of -1.1%.

Footwear and apparel could only manage growth of 3.6%. Personal care fell 16.4%, but part of this was a deliberate decision to end the Coty distribution agreement in July 2023, which led to only a marginal decline in profit. This discipline to walk away from subeconomic opportunities is a critical part of the AVI investment case.

Troubles in China for Richemont

Richemont released a sales update for the first quarter that looks pretty dismal at group level, with sales only up by 1% at constant exchange rates and down 1% as reported. You need to dig into the segments to properly understand the numbers.

Asia Pacific is where the issue lies. It happens to be the largest segment, so it’s an unfortunate place to be experiencing an 18% drop in sales at constant exchange rates. Even within Asia Pacific, it’s important to figure out which countries are problematic. China, Hong Kong and Macau fell by 27%, with South Korea and Malaysia helping to soften the blow, as they were in the green.

Not all markets in the East have been painful. Japan achieved a 59% growth rate, with Richemont attributing this to domestic demand and increased tourist spending, with Japan welcoming more visitors thanks to the weaker yen. Markets like the UAE and Saudi Arabia also benefit from tourist spending.

Despite this update, Richemont’s share price barely reacted. The market doesn’t seem to be perturbed by the sales performance, perhaps in the hope of LVMH swooping in and making an offer for Richemont. Bernard Arnault, founder of LVMH, recently bought shares in Richemont.

The irony, of course, is that, if Richemont’s share price does start to falter, that creates the best possible chance of a mega deal with LVMH.

Pick n Pay needs to get its stores right

The circular for the rights offer has finally been released. The raising of R4-billion in equity from the market is no surprise at all, so there’s not much point in focusing there. Instead, we can consider some of the strategic nuggets included in the circular.

Pick n Pay notes that it needs incremental operating funding for the rest of 2025. This implies that, even though load shedding has been banished to the history books (touch wood), the group is still burning cash.

Another important point is that Pick n Pay has clearly recognised the poor customer service reputation. To get the management team closer to the stores, it has restructured the retail business to have six regions rather than three. It is investing heavily in staff training as well.

Read more: The Finance Ghost: The market lowdown on property valuation changes and Pick n Pay’s slog

It will also hopefully have less floor space as part of a disciplined approach of being willing to cut back on space. Landlords might need to get creative about how to fill the space, but either way Pick n Pay will look to reduce the subeconomic stores and either convert them into Boxers or perhaps into franchise stores.

This leads us to the most startling revelation of all: an acknowledgement in the circular that franchise stores have better metrics than corporate-owned stores because of franchisees’ focus on operations and service.

Checkers can get it right with a corporate-owned model. So can Woolworths Food. What exactly is going on at Pick n Pay that is making it so hard? DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.