Release Date: May 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pick N Pay Stores Ltd (JSE:PIK, Financial) reported a turnover of ZAR112.3 billion, reflecting a 5.4% increase year-on-year.
- The Boxer division showed strong performance with a 17.3% increase in turnover and a trading profit of ZAR1.9 billion, up 9.4% from the previous year.
- The company has embarked on a ZAR4-billion rights issue to recapitalize the business, supported by the Ackerman family.
- Pick N Pay Clothing standalone stores grew by 17%, outgrowing the market by 6.3%.
- The company has a clear strategy to address underperforming stores, including closures, conversions to Boxer, and franchising.
Negative Points
- Pick N Pay's core supermarket business reported a trading loss of ZAR1.5 billion, a significant decline from the previous year's profit of ZAR1.3 billion.
- The gross profit margin contracted by 150 basis points to 18.1%, with a notable impact from modernization costs and inventory provisions.
- The company recorded impairments of ZAR2.8 billion related to underperforming stores, indicating significant financial strain.
- Net debt increased to ZAR6.1 billion, with a net debt-to-EBITDA ratio of 6.3, highlighting high leverage.
- Operational challenges and strategic missteps over the past decade have led to a decline in the core business, necessitating a multi-year turnaround plan.
Q & A Highlights
Q: What store metrics did you apply to classify underperforming stores, and how will the loss in volume affect supplier incentives? What do you expect the overall cost of closing the stores to be?
A: We evaluate each store individually, considering factors like location and demographic changes. Supplier terms will be adjusted to maintain profitability despite potential volume decreases. The cost of closing stores will be managed on a case-by-case basis, negotiating with landlords as needed.
Q: What is the current rollout plan for Boxer stores, including food versus liquor stores?
A: About half of the new Boxer store openings will be liquor stores. Boxer has significant growth potential, and we will ensure it receives the necessary capital for expansion.
Q: Can you provide more details on the new franchise model and its benefits?
A: The new franchise model incentivizes franchisees to buy more through our system, aligning their interests with corporate operations. Franchise operations are now integrated into regional structures for better coordination and support.
Q: What are the CapEx expectations for the next three years?
A: For the upcoming year, CapEx is guided at ZAR2.2 billion, with a focus on operational execution before further capital allocation. Future CapEx will be determined as we refine our store-by-store plans.
Q: What is the future of the QualiSave initiative?
A: The QualiSave initiative will be phased out, with stores being rebranded as Pick n Pay and ranges reinstated. The conversion cost is estimated at ZAR50 million for signage and adjustments.
Q: How do you plan to right-size the Hyper stores, and is this included in the ZAR1.8 billion write-down?
A: We aim to reduce Hyper store sizes to around 6,500 square meters. Some right-sizing costs are included in the initial write-down, but further adjustments will be made as needed.
Q: Can you explain the process and timing for renegotiating leases with landlords?
A: We are already in discussions with landlords on a store-by-store basis to negotiate lease terms for stores identified for closure or conversion.
Q: What are the current loyalty levels and service quality in the franchise division?
A: Franchise service levels are on par with corporate stores. Relationships with franchisees have improved significantly, and the new franchise model is already showing positive results.
Q: How do you plan to address the low capacity utilization at the Eastport distribution center?
A: We are considering third-party logistics (3PL) options to utilize excess capacity at Eastport, which was built based on higher projected volumes.
Q: What impact has load shedding had on earnings, and is it factored into future forecasts?
A: Load shedding costs for the past year were around ZAR700 million. This is factored into our base assumptions for future forecasts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
