Progress at Pick n Pay

Aside from the frantic trading of Brazilian stocks that appeared to be a popular strategy among my finance friends, yesterday also featured a set of numbers from Pick n Pay. This company is critically important to the local economy, so there’s plenty of focus on how the group is performing.

Thankfully, there are some green shoots. But they are fighting against some terrifying weeds for survival.

I’ve focused on Pick n Pay in Ghost Bites below. It makes for juicy reading.

Enjoy!

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Pick n Pay (JSE: PIK) closed 6% higher yesterday. This brings the year-to-date decline to 9%, which isn’t terrible in the context of the broader bloodbath in retail.

It’s still a very ugly story over longer time periods (-26% over 12 months and -56% over 5 years).

That’s because turnarounds are hard things.

It’s very rare for a share price to get all the way back to where it started, especially if there was a rights offer other form of equity capital raise along the way that increased the number of shares in issue.

If a turnaround goes well though, the investors who backed the company in its darkest days can end up doing well.

Will that be how this story evolves at Pick n Pay?

I certainly don’t have the answer to that question, but I did get a chance to speak to CEO Sean Summers yesterday. It was a candid and engaging discussion, which immediately told me that the culture at Pick n Pay is very different to how it was several years ago.

I appreciate the no-BS attitude of Summers. It’s the type of approach that you need when you are trying to save a big ship instead of just getting some of the people to the lifeboats.

The challenge is that Pick n Pay finds itself at the centre of a really difficult Venn diagram, with one circle representing the immense consumer pressure in South Africa and the other representing world-class retail competitors.

There will be no easy wins in this process, which is why I’ve remained largely bearish on Pick n Pay throughout. It’s less to do with the people involved and more to do with the broader operating context.

In the 26 weeks to 30 August 2026, there are at least some metrics that bulls can hang their hats on.

The most obvious one in my opinion would be Pick n Pay segment gross margin, up 70 basis points to 17.5%. Pick n Pay attributes this to “better category and margin management”, which is a fancy way of saying that they’ve gotten better at pricing and execution.

Mix effects also matter in retail, so management will be looking to gain ground in the categories that offer the most bang for buck at the gross margin level.

Another metric that looks quite encouraging is like-for-like sales growth of 2.0%, matching the like-for-like expense growth of 2.0%. That sounds good for margins, but remember that the group has been shrinking overall. This is why reported Pick n Pay turnover dipped by 0.1%, while trading expenses grew by 1.7%. Like-for-like growth will be a closer approximation of total turnover growth once the store footprint stops shrinking.

But here’s the number that I don’t like at all: the trading loss after leases is still a massive R1.1 billion.

Let’s dig into that a bit further.

Grocery is a very low margin game, with a high performing business only running at mid-single digit trading margins.

If we assume a 4% incremental trading margin at Pick n Pay for the sake of the maths, they would need R27.5 billion incremental turnover just to overcome these losses.

Here’s the problem: total turnover in this period was R36.4 billion.

Does this make the turnaround impossible? How on earth can they grow turnover by a further R27.5 billion?

My view is that they can’t. But there’s something else they can do instead…

It’s less about incremental turnover and more about the existing turnover becoming a lot more profitable. They need to get the right margins on the existing base of R36.4 billion.

How would they do this?

Firstly, gross profit needs to move a lot higher. This is going to require better volumes and store-level execution across the board.

There is a gulf between Pick n Pay’s gross margin (17.5%) and the levels in the mid-20s that Shoprite (JSE: SHP) and Woolworths (JSE: WHL) are operating at.

The gap is an elephant that needs to be eaten one spoon at a time - but preferably with a tablespoon, as these losses need to be reduced as quickly as possible. The breakeven target of FY29 is a long way away.

There’s also the successful negotiation with the unions that should drive improved store-level economics in terms of labour costs. It’s unclear at this stage how significant the impact could be, but this is a really important step. Out of total trading expenses of R8.1 billion in this period, employee costs were R3.4 billion.

If they can make meaningful progress on these metrics, then a path to reducing (and eradicating) the losses becomes clearer. This is why the strategy at Pick n Pay has been so inward-focused, rather than just relying on growing total sales.

Looking at the balance sheet, this was a stronger period for working capital. Inventory was down by 3.2%, equating to a R225 million inventory reduction.

This implies a more efficient retail operation, but there’s a limit to the efficiency gains that can be made here, as it’s obviously not helpful if the shelves aren’t stocked. It’s always a balancing game in retail.

The working capital unlock was a major contributor to Pick n Pay’s cash-generating position in this period. The company was cash positive even if you exclude the proceeds from the Boxer sale.

But the bigger test will be the second half of the year, as the first half typically experiences a seasonal working capital release anyway.

Another thing to watch in the second half will be the capex spend. Pick n Pay is expecting quite the jump here, with R0.7 billion in the first half vs. full-year guidance of R2.6 billion. If we exclude Boxer, the jump is R0.4 billion to R1.5 billion.

Take a look at this cash flow waterfall chart, keeping in mind that it’s likely to look very different in the second half based on the guidance and seasonal working capital profile:

Above all else, do you know what Pick n Pay really needs?

Like most retailers, the company needs the economy to throw it a bone.

Alas, the only bones you’ll find in this environment are the ones buried alongside the dreams of many investors in the retail sector in the past year.

I’m genuinely not sure if things have ever been tougher for our local retailers, but I do have a bit more faith in Pick n Pay than I used to.

Throughout the mess, I’ve hoped for the same outcome: a stabilised business that employs tens of thousands of people and contributes to a constructively competitive environment in grocery retail.

ASP Isotopes (JSE: ISO) announced that Renergen’s Tetra4 subsidiary has achieved stable production of liquid helium. After the journey that the company has been through to reach this point, I hope that some of that helium will be going into celebratory balloons!

The next step is to actually deliver the stuff, as it is currently accumulating in cryogenic storage ahead of initial deliveries under offtake agreements. It’s almost time to add some champagne to the balloons, but not quite yet, as logistics with the offtakers must still be finalised.

The bigger focus is on the rest of this year, with Phase 1 expected to reach nameplate capacity during the fourth quarter of 2026. It will be a big moment if they can keep that promise.

RMB Holdings (JSE: RMH) had no issue implementing the odd-lot transaction, with nearly unanimous approval at the meeting required to approve the repurchase. This is a mechanism through which a company can mop up very small shareholders who present a larger administrative burden than they are worth to the company.

Finally, some selected director dealings:

Do your own research and speak to your financial advisor. Nothing you read or listen to in Ghost Mail should be interpreted as financial advice. This is not a complete review of SENS and does not replace the need for you to refer to company announcements and reports yourself. Every effort is made to avoid errors in Ghost Bites and related podcasts, but I am only human.

The S&P 500 ended 0.7% higher, while the Nasdaq 100 rose 1.1% and the Dow gained 0.3%. Tech counters led the advance after Anthropic's IPO filing lifted sentiment towards AI related stocks, while Meta announced plans for a $95 billion equity raise to fund its AI infrastructure.

Asian markets are following the lead higher this morning, with Japan's Nikkei up 1.7% and South Korea's Kospi rallying 3.8%, although China's SSE Composite is trading lower. US futures are little changed.

Oil prices continue to ease from recent highs as fresh diplomatic efforts raise hopes of preventing further escalation in the US Iran conflict, with officials from Saudi Arabia, Turkey and Pakistan having held talks with Tehran.

The FOMC begins its two day meeting today, with markets pricing 90% odds that rates are left unchanged at 3.75% to 4%. Focus will fall on Fed Chair Kevin Warsh's press conference on Wednesday for clues on December, where expectations for a hike stand at 75%. Earnings season also picks up pace, with Visa, Coca Cola and Boeing reporting today, followed by Alphabet and Microsoft on Wednesday and Amazon on Thursday.

The dollar index firmed slightly overnight, and the rand is holding around the R16.60 level, while gold is trading slightly softer this morning.

Locally, this week brings month end data including money supply, private sector credit, trade balance and budget balance figures, as well as September producer inflation. The JSE All Share index is expected to open firmer this morning.

This update is provided by Shaun Murison, Senior Market Analyst at randswiss.com. Connect with him on LinkedIn here and follow him on X here.

Key Indicators: 

USD/ZAR R16.65/$ | US 10yr 4.97% | Gold $4,002/oz | Platinum $1,508/oz | Brent Crude $115.21