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UPDATE 1-Staff cuts weigh on profits at South Africa's Pick n Pay
October 17, 2017 / 10:43 AM / 2 months ago

UPDATE 1-Staff cuts weigh on profits at South Africa's Pick n Pay

* Half-year profit falls 25 percent

* Staff cuts helping to limit price increases

* Retailers facing tough competition in struggling economy (Writes through with context)

JOHANNESBURG, Oct 17 (Reuters) - South African supermarket operator Pick n Pay reported a drop in half-year earnings after cutting jobs as part of an intensifying price battle with rivals in a stalling economy.

Grocers in Africa’s most advanced economy, which include Shoprite and Woolworths, have been under pressure to keep prices low as cash-strapped consumers reel from a recession and unemployment hovers above 27 percent.

Pick n Pay shed staff this year with a voluntary severance programme. That has helped to cut costs and keep its price increases to around 3 percent, compared with consumer inflation of around 5 percent.

“We’ve taken about 10 percent of workforce out and obviously we have to pay that bill in the first half, which is what we are doing,” Chief Executive Richard Brasher told Reuters.

Pick n Pay’s headline earnings per share fell to 61.88 cents for the six months to end-August from 82.43 cents a year earlier.

Headline earnings per share strip out certain one-off items and are the main profit measure in South Africa.

Excluding severance costs, earnings rose by around 13 percent, marking a ninth consecutive period of profit and sales growth, the company said in a statement.

When Brasher took the reins at the retailer in 2012, growth at rivals Shoprite and Woolworths had outpaced Pick n Pay for more than a decade.

He was tasked with a turnaround strategy which would first stabilise the business and then improve profit margin growth.

Pick n Pay has since pushed into private label products, increasing the share of these higher-margin products to 19 percent of sales, from 5 percent, Brasher said.

Brasher has also modernised planning and distribution systems and introduced a shopper loyalty programme.

But the pressures on consumers are making Brasher’s plans more difficult to execute, Gryphon Asset Management analyst Cassie Treurnicht told Reuters.

“When he took the reins competition was not as tough as it is now,” Treurnicht said adding that the staff cuts were an admission by the company that the environment is difficult.

He sees Brasher’s focus on private label goods, convenience food and online shopping as steps in the right direction, but it will be hard to make up ground on market-leader Shoprite.

Shares in Pick n Pay were up 0.9 percent at 0958 GMT compared with a 0.8 percent decline in the JSE’s general retailers index. (Reporting by TJ Strydom; editing by Jason Neely/Keith Weir)

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