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Pepkor Weathers Tough South African Market

Pepkor Weathers Tough South African Market

(Bloomberg) --

Pepkor Holdings Ltd. rose as the South African retailer weathered weak consumer confidence in its home market and its clothing and general merchandise division took market share.

Operating profit at the group’s clothing chains, which include Pep, climbed 3.7% in the year through September, even as high levels of unemployment and low economic growth constrained South African consumer spending, the Cape-Town-based company said Monday.

The stock climbed 2.5% as of 11:47 a.m. in Johannesburg and a close at this level would be the highest in two months.

“You can only sell what you buy and we are still buying for proper growth, so that when things turn we will be there gaining more market share,” Chief Executive Officer Leon Lourens said by phone.

Like other local retailers, the picture in the rest of Africa is tougher and Pepkor counted its Zimbabwe operations as discontinued as it exits that country, which is battling rampant inflation.

Read more about Pepkor’s annual earnings

Earlier this month, Shoprite Holdings Ltd. started a review of supermarket operations outside South Africa and said it would consider exiting certain countries if that would help reverse regional sales declines. Excluding its home market, Africa’s biggest grocer reported a 4.9% fall in third-quarter revenue.

Pepkor, which has operated in the rest Africa since 1995, isn’t planning to pull out of any other countries on the continent, Lourens said. Equally, it doesn’t plan to add to the number of stores beyond its main market, he said.

The company has faced several other challenges since majority owner Steinhoff International Holdings NV was thrown into turmoil almost two years ago because of an accounting scandal.

Pepkor took a 1.2 billion rand ($82 million) impairment on its building-material supplies business in the year. While the unit accounted for 13% of Pepkor’s revenue in the 2018 financial year, its profit plunged in the year through September and no longer warranted the related intangible assets on its balance sheet.

It’s not the first writedown for Pepkor. In May 2018 it took 511 million rand charge for a controversial management-incentive plan that predated its spinoff from Steinhoff in 2017. This cost Pepkor a further 80 million rand this fiscal year.

Read more about Pepkor taking further writedowns

Steinhoff is looking at options for its pan-European discount variety retailer Pepco Group. While Pepkor previously said it would be interested in rejoining with that business, that is looking increasingly unlikely, Lourens said. Steinhoff is said to be considering the sale of about a quarter of Pepco through an initial public offering that could value the European retailer at more than 4 billion euros ($4.4 billion).

Pepkor would be interested in Pepco if it could get a majority stake at a price it could afford, but at this stage “it doesn’t look like that’s going to happen,” said Lourens. He doesn’t see Pepkor buying into a Pepco IPO.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Hilton Shone, Vernon Wessels

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