Pick n Pay expects up to 35% rise in profits, share price jumps

JOHANNESBURG (Reuters) – South Africa's No.2 grocer Pick n Pay Stores Ltd flagged a more than one-third jump in half-year profit on Monday, as cost cuts helped it offset sluggish sales growth.

Once a darling of investors and customers, Pick n Pay is in the middle of a turnaround plan that includes slashing costs while still opening new stores after losing ground to peers such Shoprite Holdings.

The Cape Town-based company said diluted headline earnings per share, the main South African profit measure that strips out certain one-off items, likely increased between 25 percent and 35 percent in the six months ended August.

But top-line growth was at least two times slower than profit, a sign that much of that increase in the bottom line came from cuts which included scaling back dividends, reducing staff and dropping consultants.

The muted sales growth – at about 7 percent – highlights an industry-wide downswing as rising electricity prices, increasing interest rates and high personal debt levels hit consumer spending.

Shoprite warned of a continuing squeeze on the country's consumers, from whom it chalks up the bulk of its sales, after posting its slowest profit growth in 15 years in August.

Shares in Pick n Pay, which are up nearly 10 percent so far this year, jumped as much as 3.5 percent in early trade. By 0746 GMT, the stock was trading 2.3 percent higher at 56.76 rand, outpacing a 0.3 percent gain in the JSE All-share index.

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