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Pick n Pay slides on profit warning

Johannesburg - South Africa's second-biggest grocer retailer Pick n Pay's profit guidance missed forecasts on Thursday, stung by higher costs and industrial action, sending its shares tumbling nearly 5%.

Pick n Pay Stores [JSE:PIK] stock slumped 4.74% to R46 in late afternoon trade, lagging behind its closest rival Shoprite Holdings [JSE:SHP], which was off 0.25%

"The forecast is way below the market consensus and it shows that the company is still struggling with costs and deflation," said RMB Asset Management's fund manager Evan Walker.

Pick n Pay said diluted headline earnings per share from continuing operations likely fell by between 10% - 25%, well above a median estimate of 6.3% decline by 12 analysts polled by Reuters.

The company's headline EPS - the main profit measure in South Africa that strips out certain one-off items - totalled R232.71 in 2010 fiscal year.

While consumers warm up to spending in South Africa, thanks to decades-low interest rates and deflation, Pick n Pay is yet to see the benefits as it is spending a chunk of its cash building distribution centres to improve margins.

Pick n Pay said headline earnings per share that includes assets that are up for sale could fall by between 15% and 30% in the year to end-February, hit by higher costs and industrial action.

The company suffered under a two-week strike over pay in October last year.
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