Pick n Pay upbeat about profit

Johannesburg - South African supermarket group Pick n Pay said on Thursday 15% full-year headline earnings per share growth was not impossible and that Christmas sales beat expectations thanks to food price inflation.

Finance Director Dennis Cope also told Reuters the company was looking "seriously" at expanding into high-growth African markets such as Angola, Mozambique, Zambia and possibly Nigeria, and expects to enter a new market by the end of the year.

"It's not out of our range for the second half, and therefore the full year," Cope told Reuters in a telephone interview when asked whether a 15 percent first-half increase in headline EPS was sustainable.

He said sales over the Christmas season were better than the company had expected, with percentage growth in the "mid teens", although this was boosted by inflation of 13 percent as food prices soar, and by the opening of new stores.

Shares in Pick n Pay closed down 0.32 percent at R36.90, outperforming a 2.28% drop on the blue-chip index and a sharply lower Johannesurg retailers index.

South African retailers are struggling to keep sales rising faster than inflation as consumers rein in spending to cope with relatively high interest rates and inflation. The global economic crisis and thousands of job cuts closer to home have not helped sentiment.

But supermarkets such as Pick n Pay and discount stores have fared better than higher-end rivals such as Woolworths, as customers opt for cheaper products and eat at home rather than in restaurants.

Massmart

Mass retailer Massmart separately reported a 13.2% increase in 26-week sales to 22.8 billion rand, helped by higher prices and strong growth at its discount chain. However, its share price fell 1.88% to R85.

"Clearly people are trading down," said Abri du Plessis, chief investment officer at Gryphon Asset Management. "Consumers are cutting back, opting for discount stores and spending money on food instead of other indulgences."

'Less bang for your buck'

Cope said in volume terms, sales of clothes and general merchandise were flat over Christmas, while food rose, but only because of extra stores.

"Bottom line is there are more people in the economy spending more money in nominal terms, but they are getting less bang for their buck," said Dean Ginsberg, retail analyst at Citigroup. "That's not necessarily bad for retailers."

Cope also said the company would not make any big changes to its new store plans, although it had decided not to fast-track two new stores as initially planned due to the downturn.

A pilot for launching small convenience stores at BP gasoline stations was going "very nicely" and Cope said that if it proved a success over the next few months Pick n Pay could launch as many as 100 of the franchises across South Africa.

He said he hoped the struggling Australian unit Franklins would turn a full-year profit after easing into the black in the first half, but that it would be marginal.

- Reuters