SOUTH AFRICA - South African retail giant Pick n Pay, known for its grocery and clothing stores, continues to face a challenging period as it presses forward with its turnaround strategy. 

The company, which also owns Boxer, is grappling with growing losses and store closures, particularly in its core Pick n Pay supermarket chain. As part of its restructuring, the retailer is preparing to separately list Boxer on the Johannesburg Stock Exchange (JSE) by the end of 2024.

In a trading statement covering the 26 weeks ending August 25, 2024, Pick n Pay warned investors of another tough financial performance. The company expects its loss per share and diluted loss per share to rise between 30% and 40% compared to the previous year. 

Similarly, headline loss per share and diluted headline loss per share are projected to increase by 10% to 20% year-on-year, while comparable headline loss per share could climb between 20% and 30%.

The trading statement, released after markets closed last week on Thursday, hints at further difficulties ahead. The retailer's financial report for the first half of its 2025 fiscal year is set to be published on October 28, 2024. 

Investors are bracing for more disappointing results, largely driven by the continued poor performance of the Pick n Pay division, in contrast to the positive trajectory of its discount grocery chain, Boxer.

Pick n Pay's decline vs. Boxer's growth

While Pick n Pay's overall group sales for the period increased by 3.7%, the flagship Pick n Pay brand saw a 0.3% decline in sales. Sales in South Africa rose marginally by 0.1%, with like-for-like sales showing a slightly better 1.1% increase. 

However, the company attributed much of this underperformance to the closure of 24 supermarkets, including 10 corporate stores and 14 franchises, as part of its ongoing efforts to shutter loss-making outlets.

Boxer, on the other hand, demonstrated resilience with a 12% growth in sales, driven by strong like-for-like performance and a strategic expansion plan that saw the opening of 12 new stores during the period. 

The company expects even more openings in the second half of the year as Boxer continues to outperform the rest of the group.

The stark contrast between the two brands depicts the retailer’s challenges. While Boxer is thriving, Pick n Pay's stores, particularly those directly owned by the company, have been underperforming. 

In recent years, these company-owned outlets have consistently lagged behind franchise stores, making the turnaround effort even more pressing.

Turnaround efforts and the recapitalization plan

In response to its ongoing challenges, Pick n Pay’s management has begun executing a two-step recapitalization plan. 

In August 2024, the company successfully completed a US$209 million (R4 billion) rights offer to strengthen its financial position. On October 1, 2024, Pick n Pay received overwhelming shareholder support to proceed with the Boxer listing. 

The listing is set to take place on the main board of the JSE by the end of the year, which the company hopes will provide a fresh injection of capital and renewed investor confidence.

Despite its disappointing trading results, Pick n Pay remains optimistic about its future prospects. CEO Sean Summers has emphasized the company's commitment to its turnaround strategy. 

The refreshed management team has focused on revitalizing like-for-like sales, with early signs of progress. Like-for-like sales growth improved from -0.4% in the second half of the 2024 fiscal year to 1.3% in the current reporting period.

Summers has also committed to closing 35 underperforming Pick n Pay stores and converting 70 outlets to the Boxer brand. He reiterated that the company will avoid the mistake of turning struggling stores into franchises, as this has historically resulted in significant franchise debt and financial strain on franchisees.

Pick n Pay is banking on its restructuring initiatives to reverse years of market share losses to larger competitors like Shoprite. The group is also optimistic that a reduction in interest charges, resulting from its recapitalization, will help to improve its full-year performance. 

Though the company has not indicated whether it expects to return to profit for the full year, it anticipates an improvement in its financials compared to the prior year, largely buoyed by Boxer's growth and a reduction in trading losses at its Pick n Pay supermarkets.

As the retailer pushes forward with its turnaround plan, the focus will now shift to improving the performance of franchise stores and accelerating the progress already seen in company-owned supermarkets.