Turnarounds are notoriously long and difficult but can be especially drawn out and dangerous when it comes to a business that operates on a sliver of a margin.
Older investors will recall the travails of the once-mighty OK Bazaars between the late 1980s and mid-1990s as controlling shareholder South African Breweries lost patience with the elusive turnaround.
This week the market took a dim view of Pick n Pay pencilling in deep losses for the financial year to end-March. At the time of writing, Pick n Pay shares had suffered an intraday plunge of about 8%, even briefly slipping below R20. It’s a dire pronouncement by the market, and questions about the retailer enduring in its current form will become more audible.
The group put on a brave face: it acknowledged that the loss was a disappointment for shareholders but cited “substantial on-the-ground operational improvements”. The directors reiterated that the recovery in trading profit will not be linear and that the group continued to deliver on the strategic initiatives designed to restore profitability.
It’s difficult to take much hope from the detailed trading narrative; Pick n Pay is simply not growing its like-for-like top-line sales fast enough to ensure profitable traction at the bottom line. A ferocious competitor such as Shoprite must be gobbling up market share.
Pick n Pay indicated that on a month-by-month basis, like-for-like sales momentum in Pick n Pay South Africa Supermarkets showed moderate growth in September and October, a decline in November and a return to growth in December. There were further improvements in trading in January. The smallest of glimmers?
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