Pick n Pay Faces Turbulent Times as Boxer Unbundling Leads to Share Price Plunge

The South African retail giant Pick n Pay has hit a significant bump in the road, evidenced by the near 19% drop in its share price, which followed the announcement of the unbundling of its Boxer discount division. The move is part of an aggressive strategy to tackle rising debt and improve the company's financial health. By planning to list Boxer on the Johannesburg Stock Exchange (JSE), Pick n Pay anticipates raising approximately R4-billion, which they hope will provide a much-needed infusion of capital.

The market reaction to the announcement was swift and negative, with the share price tumbling by 18.9% immediately after. The picture had been slightly rosier at market close with a minimal recovery to 18.75%. However, the respite was brief, and the shares continued to languish at 16.02% below its previous level the following morning, marking the company's poorest performance since October 2004.

Despite the market's lack of confidence, the steps outlined by Pick n Pay could potentially pave the way to financial recovery. As outlined by CEO Sean Summers, who returned to the company helm in October 2023, the turnaround plan includes the two-step equity capital raise, with the majority stake of Boxer still being retained by Pick n Pay post-IPO. The capital raise terms are being finalized and await approval from the board, shareholders, and regulators. The Ackerman family, a key shareholder in the group, has endorsed this approach.

The retailer is putting up a brave front despite posting its worst results since its listing on the JSE in October 2023. The company admitted to a trade performance that left much to be desired. Supermarket sales dipped by 0.1% in the 47 weeks ending 21 January 2024. This, combined with higher inventory levels and strategic investments across several business streams, resulted in a net debt spike from R3.8-billion to R7.2-billion.

There was a minor improvement in February 2024, as a result of property sales bringing in R0.5-billion in cash proceeds. Additionally, efforts to reduce inventory levels are expected to free up cash post-year-end. Despite these improvements, there is an acknowledged need for a more streamlined and robust balance sheet.

In an effort to recalibrate its approach to business, Pick n Pay is not only focusing on Boxer but is also making strides in other areas. Its clothing range has seen an impressive 17.5% growth, and its online presence burgeoned by 75.8%, with successful revamps and partnerships bolstering these figures.

These strategic measures are part of a broader revamp, which Summers indicated will require at least 18 months. His blunt acknowledgment of Pick n Pay's lack of engagement with customers, employees, and suppliers underlined the enormity of the challenge ahead. "We go up," he optimistically told investors. The retailer is focusing on restoring in-store execution and customer service to win back trust and patronage.

Pick n Pay's journey back to profitability is uncertain but appears to be setting the stage for significant internal and market-facing changes. Details of the capital raise are slated to be disclosed following the company's full-year results in May.