Pepkor increases turnover by 10.9% despite challenges

Pepkor's turnover was 10.9% higher at R64.2bn for the financial year ending September 30 it announced on Monday.

Operating profit - before capital items and excluding once-off costs - increased by 10.7% to R6.4bn.

Headline earnings per share (HEPS) was declared 36.7% lower at 84.5c, although more than 20% of this decline is purely as a result of the group issuing 882 million shares during 2017 for the acquisition of Tekkie Town and upon its listing on the JSE, the group said.
 
In addition, 2018's earnings are impacted by 15 cents for once-off costs of R511m pertaining to the provision for a corporate guarantee which is underpinned by the Steinhoff share price. This was already reported to the market by Pepkor in May 2018 and the group has conservatively provided for the full exposure, it said.
 
On a normalised basis the HEPS was 99.3 cents.

The board declared a maiden dividend of 27.8 cents per ordinary share.

Pepkor said in a statement that it is happy with its "strong top-line revenue growth despite the corporate turmoil of the past year".

"In a retail industry that is under severe pressure (Pepkor) delivered good results – proving that its defensive discount and value proposition can withstand a constrained economy and cash-strapped consumer," the group said in the statement.

Its clothing and general merchandise segment, which includes, among others, Pep, Ackermans, Refinery and Tekkie Town is the largest contributor to group turnover. Pepkor said this segment performed well despite significant pressure on consumers' spending power "as a result of a strained economy and significant selling price deflation".

This segment's revenue was up by 7% to R42.5bn while operating profit was 8% higher to R6.1bn. This segment - with a footprint of 4 200 stores - now does more than 1-million sales transactions per day - 6% higher than the year before.
 
PEP opened 137 new stores during the financial year and achieved 19 successive years of double-digit operating profit growth. Ackermans opened 80 new stores and celebrated its ninth consecutive year of high double-digit operating profit growth.
 
"Pep Africa had a challenging year marked by the lagging effect of low commodity prices, foreign exchange shortages, and high inflation rates that continue to weigh on consumer spending," the group said.
 
Within the speciality segment, the Refinery and John Craig brands reported stellar performances and Tekkie Town continues to trade well, according to the group.
 
The furniture, appliance and electronic segment – including businesses such as HiFi Corp, Incredible Connection and Bradlows – increased turnover by 11% to R8.6bn.

"The business is now profitable from an ongoing operations perspective and is optimally positioned following its restructure, brand consolidation, and significant reduction in credit reliance," the group said.
 
The building materials segment with Buco and Timber City reported a decrease in sales. It operates in a highly competitive industry which was further exacerbated by the subdued economy, the group explained.
 
Leon Lourens, CEO of Pepkor Holdings, said the group's defensive discount and value market positioning helped in an economy where consumers continue to face significant pressure on spending power.

"The biggest challenge was the high deflation numbers that most of the brands had to combat and under these circumstances we are happy with the revenue growth that we were able to achieve" he said.

Sanlam Private Wealth's senior investment analyst David Lerche told Fin24 that he gets the sense that Pepkor will make some changes to its portfolio in the next year or two.

"We don't know yet what they will do. We will find out in due course if they decide to keep all of the portfolio, or sell some or close some down," said Lerche.

"It would appear much of their 'struggle' during the financial year was Steinhoff related. I don't think the original Pepkor guys would have wanted all the other stuff added."

Lerche also pointed out that Pepkor seems more optimistic than the rest of the retail sector about the growth outlook - probably more specifically relating to clothing retail.

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