Pepkor appears to have been a net beneficiary of Covid-19 as consumers continue to shop down while strong demand for electronics and furniture has made up for softer growth in apparel after the school year got off to a later start due to the second wave of the pandemic. 

The retail group, which is majority-owned by Steinhoff International, expects to report a decent rise in first-half earnings as South Africans kitted out home offices and studies so they could continue to work and study from home. According to data from Retailers’ Liaison Committee, it has gained market share in nearly all its retail brands.

While it had to deal with restrictions imposed to deal with the second wave of Covid-19, a trading update for the six months to 31 March shows sales of clothing and general merchandise still increased by 8.1% to R26.3-billion, supported by strong performances at Pep and Ackermans.

Its speciality business, which includes the Tekkie Town, Refinery, Dunns and Shoe City chains, benefitted from demand for casual wear and branded footwear, growing sales by 11.3%. Excluding John Craig, the menswear chain it sold in February, sales were up 16.6%.

While Covid-19 may have held back sales growth in its clothing and apparel divisions, it boosted demand for furniture, appliances and electronics as consumers continued to upgrade technology and bought more furniture and appliances. Revenue at its JD Group division, which includes a number of furniture chains as well as HiFi Corp and Incredible Connection, jumped 12.8% to R5.7-billion.

Sales at The Building Company, which houses all its hardware chains, rose 9.6%. However, the business has been accounted for as a discontinued operation following the sale to Cashbuild last year. It said the transaction was currently in front of the competition authorities for approval.

Excluding The Building Company, revenue from continuing operations rose by 8.1% to R36.5-billion. That was despite the comparative base period a year earlier largely falling before the outbreak of the pandemic and the subsequent lockdowns in South Africa.

“(It’s) a pretty strong number given that its base period is October 2019 through March 2020,” said Chantal Marx, head of investment research at FNB Wealth and Investments.

“The second six months have a much weaker base so it should easily meet or exceed consensus expectations of 11% revenue for the full year ended 30 September.” 

Strong cash generation over the period helped it reduce net debt to R6.1-billion from R14.1-billion at the end of March 2020. That contributed to a lower interest bill, further boosting first-half profit. For the six months, it said interim earnings and headline earnings per share (HEPS) were likely to be at least 20% higher than the 43.8c and 45.6c, it reported last year.

“The HEPS guidance of more than 20% growth for 1H21 is also encouraging,” Marx said. 

“The balance sheet is also in good nick, with debt looking quite a bit lower than what was anticipated.” DM/BM