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Pick n Pay profit rises though sales lag

Johannesburg - Pick n Pay Stores plans to sell more of its own brand products in a bid to speed up sales growth and boost profit further.

The retailer posted a 24.2% rise in profit in the six months to the end of August, mostly due to cost cuts, boosting headline earnings per share (EPS) to 32.94 cents from 26.51c a year earlier. Sales rose 8.5% to R34.9bn, outpacing a 6.1% increase last year.

Headline EPS is the main profit measure used in SA and strips out certain one-off items.

"We probably haven't seen the sales-lead recovery that we talked about some two-and-a-half years ago," said CEO Richard Brasher.

He said, however, that momentum had improved in the first half and the company was now seeing growth in like-for-like sales, as well as sales at new stores.

Pick n Pay plans to increase the share of its own branded products, which account for about 15% of sales, to boost profit further.

"I see no reason for it not being 30%," said Brasher, adding that the initial focus would be on moving fresh goods through its centralised distribution centres. "We're playing catch-up on supply chain compared to Shoprite."

Pick n Pay faces stiff competition from the likes of Shoprite at the lower end of the market and Woolworths among more well-to-do shoppers.

Consumers in SA are tightening their belts amid rising interest rates, higher energy costs and the first income tax hike in more than a decade.

"I love being in the middle. We just need to get our elbows out," said Brasher.

Pick n Pay plans to claw back market share by keeping price rises low - they were only about half South Africa's inflation rate during the first half - and by opening new stores.

The retailer opened 83 new stores and refurbished 27 during the period, most of which now operate at a lower cost.

"Operational improvements include faster checkouts, Wi-Fi connectivity and automatic ordering and replenishment," the company said in a statement.

Pick n Pay is expanding cautiously into the rest of Africa, which accounts for about 12% of its operations. It plans to open three new stores in Zambia in the next year and its first store in Ghana in 2016.

Shares in Pick n Pay were up 3.51% to R63.29 by late afternoon trade.

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