Pick n Pay shares slip on retrenchment warning

PICK n Pay’s share press fell 3.4 percent to R59.26 yesterday morning after it warned shareholders retrenchment costs would drag down its interim headline earnings per share (HEPS) down by more than 20 percent.

The grocery chain said in a trading statement that its HEPS for the 26 weeks to August 27 would be at least 16c lower than the 82.43c reported in the matching period.

In April, Pick n Pay launched a voluntary severance programme offering employees one-and-a-half weeks of pay for each completed year of service, plus four weeks of notice pay, to remove “roles and functions no longer required due to improvements in organisation, planning and technology”.

Pick n Pay said this affected about 10 percent of the roles in its head office, regional structure, store operations and supply chain.

CEO Richard Brasher said: “The voluntary severance programme is one of several steps we have taken to make our business more competitive in what is a tough trading environment. For reasons of timing, it will have a material impact on our first-half result.

“But it has made us a leaner and more efficient business, and the reduction in our costs will give us more headroom to provide customers with even lower prices and better value. Our plan is on track and we are a stronger and more sustainable group as a result.”

Meanwhile, Pick n Pay has cut 10 percent of its staff, eliminating approximately 3 500 jobs, the South African grocer said yesterday, as the country grapples with its first recession in eight years.

Most of South Africa’s retailers have flagged lower or stagnant profits as consumer confidence and business sentiment plumb multi-year lows amid political turmoil.

Pick n Pay, which employs around 35 000 people, said the cost of the retrenchments will weigh on its profits in the six months to end-August.

“The voluntary severance programme is one of several steps we have taken to make our business more competitive in what is a tough trading environment.

“For reasons of timing, it will have a material impact on our result,” chief executive Richard Brasher said.

Pick n Pay expects its headline earnings per share for the half-year to fall by more than 20 percent, the company said.

But payroll savings from the second half of the year will neutralise the effect of the retrenchment costs on its full-year results, Pick n Pay said.

“In subsequent years, the reduction in employee numbers will have a significant positive impact on the operating costs of the group, creating additional headroom to reduce prices and improve value for customers,” it said.

Pick n Pay, founded 50 years ago, also has operations in Botswana, Mozambique, Zambia, Zimbabwe, Lesotho, and Namibia.

Jobs were cut at head office, in the company’s regional structure, store operations and in its supply chain, it said.

“These roles and functions were no longer required due to improvements in organisation, planning and technology,” Pick n Pay said.

The company has invested heavily in new distribution centres since 2010 to compete with rivals Shoprite and Woolworths, who have both grown rapidly over the past decade.

Shares in Pick n Pay were up 2.9 percent at R63.38 by 0921 GMT, compared with a 0.7 percent rise in the JSE’s All-share index. — Business Day/Wires