Pick n Pay suffered a 373% decrease in net profit, dropping from a R1.17 billion profit to a R3.2 billion net loss.<\/p>\n\n\n\n
The poor performance filtered down to the balance sheet. For the first time, Pick n Pay has become technically insolvent.<\/p>\n\n\n\n
The main reason for Pick n Pay\u2019s technical insolvency is its interest-bearing debt, which rose by R5.7 billion from a year ago.<\/p>\n\n\n\n
Pick n Pay\u2019s debt interest costs it R2.4 billion a year. The company\u2019s net debt-to-EBITDA increased from 1.1 times to 6.3 times.<\/p>\n\n\n\n
The rapid debt increase caused Pick n Pay to breach all its debt covenants, raising concerns about its ability to repay its debt.<\/p>\n\n\n\n
Pick n Pay has a debt-to-EBITDA covenant threshold of 2.75 times. Its current debt-to-EBITDA sits at 6.3 times.<\/p>\n\n\n\n
Pick n Pay has also breached its second debt covenant, which requires its EBITDA to be at least 3.5 times greater than its net interest expense. It is only 3.2 times greater.<\/p>\n\n\n\n
Pick n Pay\u2019s lenders agreed to relax its debt covenants \u2013 at a price. Pick n Pay had to pledge additional security on its debt in the form of 100% of Boxer\u2019s shareholding.<\/p>\n\n\n\n
Simply put, if Pick n Pay cannot repay its debt, lenders can sell Boxer to cover the money they are owed.<\/p>\n\n\n\n
The retailer’s dismal financial position shows why the Pick n Pay board booted former chief executive Pieter Boone and asked Summers to return.<\/p>\n\n\n\n
Pick n Pay closing stores<\/strong><\/p>\n\n\n\n As part of Pick n Pay\u2019s turnaround strategy, the company has assessed the performance of all its stores.<\/p>\n\n\n\n They have identified many stores in critical condition due to factors like demographic changes or a problem with the shopping centre.<\/p>\n\n\n\n \u201cThese stores will be closed. We will close and get rid of the stores that have no future,\u201d Summers told investors.<\/p>\n\n\n\n He added that they will not make the same mistake as in the past to convert these struggling stores into franchises.<\/p>\n\n\n\n \u201cYou merely end up with an extraordinary franchise debt and franchisees under too much pressure,\u201d he explained.<\/p>\n\n\n\n However, he said they will still concert certain Pick n Pay stores to franchises where franchisees can deliver higher sustainable profits and growth.<\/p>\n\n\n\n They will also convert some Pick n Pay stores to Boxer stores, where the Boxer business is expected to serve the catchment areas better.<\/p>\n\n\n\n Another big development is that the company will convert Qualisave branded stores back to Pick n Pay stores.<\/p>\n\n\n\n The retailer launched its Pick n Pay QualiSave brand in August 2022 as part of its Ekuseni strategy.<\/p>\n\n\n\n \u201cPick n Pay QualiSave is dedicated to customers who want Pick n Pay quality at exceptional prices,\u201d it explained.<\/p>\n\n\n\n \u201cPick n Pay QualiSave stores will offer customers 8,000 products, with an emphasis on meat, fresh produce, and bakery and a focus on essential commodities.\u201d<\/p>\n\n\n\n The Pick n Pay QualiSave stores were revamped to make them easily distinguishable from Pick n Pay stores.<\/p>\n\n\n\n However, the Ekuseni strategy and the Pick n Pay QualiSave rebranding did not work. It was an expensive blunder, which the company is now rolling back.<\/p>\n\n\n\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2024\/05\/Sean-Summers-1024x576.jpg\")
<\/a>
![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2024\/05\/Gareth-Ackerman-1-1024x576.jpg\")
<\/a>