Johannesburg - Shares in food retailer Pick n Pay jumped almost 7% on Thursday after the company said its headline profits rose 18.1% to 230.6c/share for the year to end-February 2009.
The shares closed 195c, or 6.71%, higher at 3 100c.
Turnover at its southern African operation rose 17.4% to R44.3bn. Cadiz African Harvest fund manager Mark Ansley said while its peers such as Shoprite reported higher figures, Pick n Pay's performance reflects the financial well-being of the different customer segments, as defined by living standard measures (LSM) retailers are exposed to.
"The lower LSM groups have been trading better than higher ones, given strong social grants and social spending. In this current cycle Shoprite's lower LSM business has done better than Pick n Pay.
"I would not worry about this strategically; I would not want to see either Shoprite or Pick n Pay changing the focus of their businesses - it's just in this current environment, the lower LSM has done better than the higher LSM."
For the six months to end-December 2008, Shoprite's turnover rose 27.3% to R29.6bn, with trading profit up 38.2% to R1.4bn.
Pick n Pay said its trading profit had contracted from 3.6% to 3.4%, "a result of a significant price investment to help consumers". However, a 0.2% reduction in expenses cushioned the drop, it said.
"I genuinely do believe Pick n Pay when it says it has consumers' best interests at heart," said Ansley.
In January, Pick n Pay CEO Nick Badminton approached the company's 30 biggest suppliers, urging them to "exercise serious restraint" with their price increases.
After a meeting between the parties in February, suppliers blamed their suppliers, in turn, for persistently high prices and suggested there were areas of monopolistic practices in the packaging, tin, paraffin wax, glass and fertiliser sectors.
Smaller format successful
Pick n Pay, seeing the success rival retailer Woolworths has had in the small-format convenience shopping segment, has experimented in this through two Express stores in BP garage forecourts and a smaller (700m² to 1 000m²) Daily format. One of these was opened in Fairland, Johannesburg in September 2008.
The company said consumer acceptance of the Express concept had been "exceptional" and that it intends rolling out two further pilot stores.
"Margins in these formats are slightly higher. Pick n Pay is not taking huge risks in investing huge amounts of capital but being experimental," said Ansley.
Pick n Pay plans to invest R1.4bn in refurbishing a further 54 stores in line with the company's new look, launched in December 2007. In the 2008 financial year, 23 supermarkets were refurbished.
Pick n Pay said its plan to convert 80 of its underperforming Score stores into black-owned Pick n Pay franchises, which started in late 2007, was paying off.
"The performance of our newly converted Score to Pick n Pay franchise stores has been nothing short of phenomenal. In some cases, turnovers have more than doubled.
A further 25 stores will be converted in the 2010 financial year, completing the conversion programme in South Africa.
A few stores in Botswana will be converted in financial 2011.
Jury still out on Australian move
The group has converted nine Score stores to Boxer, with a further four conversions planned this year.
"I think that is a very credible and good strategy," said Ansley.
Pick n Pay's three-store Australian operation, Franklins, swung from a loss into a R23.5m trading profit as turnover grew 18.2% in rand terms and 3.5% in Australian dollars.
Comparing Shoprite's decision to expand into Africa with Pick n Pay's move to Australia, Ansley said: "It looks like Shoprite's decision to move into Africa was a very good one.
"Pick n Pay's decision to move to Australia has not proved itself yet. Having said that, it is a very competitive market and continuing to generate returns in hard currency earnings could benefit Pick n Pay in the future.
"The group has turned profitable for 12 months now, so I would not criticise it heavily as this could be a strategy that will prove profitable in the long term," said Ansley.
In investment terms, South Africa's listed food retailers - Pick n Pay, Shoprite and Spar - are all trading well, said Ansley.
"Operational excellence in performance is already reflected in current share prices. Our equity team would argue that there would be alternative investment opportunities which would yield a better return, but that is by no means saying these are not good companies," said Ansley.
- Fin24.com