Pick n Pay shares tumble after earnings warning

Pick n Pay Stores ended 2.73% down at R35.60 and Pick n Pay Holdings 2.82% down at R14.83.

SA's second-largest supermarket chain said headline earnings per share from total operations (including its Australian outfit Franklins) in the six months to August would fall as a result of spending on a transformation strategy during the period.

"This investment has had a material profit impact in the current six-month period," the retailer said in a statement.

"Main contributors to this are the upfront launch costs of Smart Shopper, the planning for a specialist-category buying organisation and the continuous investment in an efficient centralised distribution system, all of which will greatly improve our ability to serve our customers."

Earnings before interest, tax depreciation and amortisation from continuing operations, excluding Franklins, would be 10%-20% lower, it said.

Avior Research analyst Simone Kruger said Pick n Pay's trading update was worse than expected. "The centralised distribution and their Smart Shopper loyalty card will bring gradual benefits for them. ... With the labour problems and the Franklins sale out of the way, we should start seeing improvements. Recovery won't be seen immediately, however, although 2012 should be the worst of it," she said.

"They do seem to be trading better, however, and the loyalty card does seem to be having an effect on boosting volumes," Kruger said.

Turnover for the six months grew 7.4%, the company said. "We attribute the increased turnover growth to a number of factors, one of the most influential of which is the introduction of our smart shopper loyalty programme launched in March 2011, which now has over 4-million customers," it said.

As the group completed the sale of Franklins on 30 September, it continues to be disclosed as a discontinued operation, it said. The net proceeds from the sale of R1,3bn would be invested in the group's local operations, it said.

The transaction will be accounted for only in the second half of the financial year.

Pick n Pay is expected to release its results on 19 October.

Source: Business Day