Pick n Pay says it expects diluted headline earnings per share to drop by between 50-60% for the 26 weeks ended August 2020 as the Covid-19 pandemic and national lockdown led to “unprecedented conditions”.
“Trade restrictions imposed by the South African government, and by other jurisdictions across southern Africa, impacted up to 20% of the Group’s revenue at different stages of the nationwide lockdown, and disproportionately affected higher-margin categories including liquor, clothing and general merchandise,” the group in a trading and earnings update on Wednesday (7 October).
Reduced trading hours, limits on the number of customers allowed in stores, and the temporary closure of some stores when staff tested positive for Covid-19 also impacted sales.
The retailer noted that GDP in South Africa contracted over 17% year-on-year in the second quarter of the calendar year, placing extreme financial pressure on many households.
Against this backdrop, it said that group turnover increased 2.6% year-on-year, with like-for-like growth of 1.0%. Turnover from South African operations increased 3.4%, with like-for-like growth of 1.7%.
“The group continued to provide exceptional value for customers, with internal selling price inflation in South Africa contained at 3.4% over the period, against CPI Food inflation of 4.3%,” it said.
Core retail sales – including food, groceries and general merchandise, but excluding liquor, clothing and tobacco – grew 8.7% year-on-year (6.4% like-for-like), with 9.9% growth in South Africa (7.6% like-for-like).
The group said liquor and tobacco categories were most affected by government trade restrictions, with full prohibition over liquor sales for 15 weeks of the 26-week trading period, and reduced trading hours for all but the first three weeks of the half-year.
The sale of cigarettes and other tobacco products was prohibited between 27 March and 17 August. “This inevitably had a profound impact on liquor and tobacco sales, with negative growth of 47.5% over the period,” it said.
Clothing sales were prohibited during the Level 5 lockdown, and were subject to some continuing restrictions under Level 4. The group’s clothing turnover decreased 4.2% in South Africa, delivering market share gains in key categories.
Pick n Pay also pointed to R150 million in additional costs because of the Covid-19 pandemic, with R80 million spent on hygiene, R50 million in bonuses for frontline staff, and R20 million on communication and security.
A once-off R100 million was paid out to employees who took voluntary severance packages at the start of the financial year, it said.
“The VSP (voluntary severance programme) is a major step forward in making the business more competitive and more sustainable. The full cost of VSP compensation payments has been borne in the first half of the financial year, and is expected to be fully recouped through cost savings in the second half of the year,” the group said.
Pick n Pay expects to publish its finalised results on 20 October 2020.