The 2026 Pick n Pay annual report had two important pieces of information on the turnaround strategy. The first is that CEO Sean Summers had forfeited 1-million performance shares as the group has not yet broken even. The second is that his fixed-term contract has been extended to 2029 — which is the new target for the successful turnaround of the group and the second time this deadline has been pushed out.
This got me thinking about Peter Lynch and his 1989 book, One up on Wall Street. In it, Lynch discusses turnaround businesses as potential investments and he makes two important points. First, they’re not influenced by wider market conditions. It’s really only about the turnaround. Second, that while turnarounds are high risk, they’re also potentially high return, if they work.
Top concern for Lynch was always if the company could survive long enough to succeed. Did it have enough capital, or friendly bankers, in order to actually get to the other side of the turnaround strategy. In the case of Pick n Pay the answer is yes. It has done a rights issues, listed Boxer and sold shares, taking the group from R7bn net debt to net cash. At the most recent Boxer sale it said it wouldn’t sell shares again for 365 days, but it has enough gas to survive until that deadline.
This, along with new management and a rightsizing of the business (closing stores), means Pick n Pay has ticked three of the key issues Lynch needed for a successful turnaround.
But there is the “little-problem-we-didn’t-anticipate” concern. This is the unknown but it may well be the current staffing situation. The company has embarked on a consultation process in terms of Section 189A of the Labour Relations Act. The plan is not so much cutting staff numbers, it’s more about staffing costs, which sit at more than 40% of trading expenses, well above competitors in the sector.
However, if things get messy and a strike does take place, Pick n Pay will be in serious trouble as revenue will disappear and the remaining customers will find new places to shop and many may simply not return when the strike is over.
The other “little-problem-we-didn’t-anticipate” is that the trading loss has worsened from R400m to R1bn. It has the cash to manage that, but is staffing the only issue causing extended losses?
I was recently in a Pick n Pay store and it was almost empty, with only one person in the queue. Yet in the same mall the Checkers was packed, as always. That’s anecdotal, but have Pick n Pay customers already moved on?
For now, the Pick n Pay market cap is below the value of the Boxer stake, though tax and other liabilities make this an imperfect comparison. However, if staff negotiations go well maybe it can win back customers; in which case, we could see a successful turnaround. Just later than everybody expected.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.