Published Date: 2021-11-22 | Source: INCE|Community | Author: The Finance Ghost
Pepkor released its annual results for the year ended September 2021.
Any earnings result in 2021 has a base effect from lockdowns and needs to be assessed in that context. At first blush, headline earnings growth of 115.2% vs. the prior year sounds like a recovery from a low base, but Pepkor has achieved exceptional through-the-cycle growth.
Headline earnings per share (HEPS) of 135.4 cents is up 38% vs. the same period in 2019, demonstrating both the resilience and the growth potential of the group. Market share has increased by 201 basis points since October 2019 in clothing, footwear and homeware, a strong result that underpins the growth in earnings.
Revenue increased 9.2% this year, with cash sales up 10.6% and credit sales up 11.2%. Cash sales contributed 93% to total group sales.
Gross margin expanded by 10 basis points to 34.3% thanks to more full-priced sales and lower markdowns. When combined with the group's disciplined approach to costs, operating profit increased by a whopping 39.9%.
Net finance costs decreased by 31.7% as the group used its strong sales to pay down debt. Cash generated from operations was R11 billion.
A result like this can easily support a dividend to shareholders. Pepkor has declared a dividend of 44.2 cents per share.
The company has flagged that sales growth has slowed in the new financial year. To give more context to this, there's a high base in the final months of 2020 and Pepkor has highlighted that sales after year-end are still positive vs. 2019.
The other points highlighted by Pepkor in its outlook are that consumers are under pressure and inflation is a concern. In my view, an interest rate hike won't help the former issue and probably won't do much to help the latter either, as many of the inflationary pressures are cost-push rather than demand-pull issues.
As a brief update on the footprint, the group opened 247 new stores during the year. By the end of October, 75% of the 549 stores damaged in the unrest had been reopened, an impressive effort by the retailer. Pepkor intends to open another 300 stores in the new financial year, mainly in PEP and Ackermans formats.