South African retail company, Pepkor Holdings, recently announced that it will not declare a dividend for the financial year 2020. This decision is aimed at preserving cash in light of the ongoing coronavirus crisis. The company’s first-half earnings for the year showed a 13.6% decrease, with its headline earnings per share dropping to 44.3 cents from 51.2 cents compared to the previous year.
One of the main causes of this decline is the lower consumer spending, which has been further worsened by the nationwide lockdown implemented to curb the spread of the virus. Retailers in South Africa were already facing challenges in the form of subdued consumer spending due to factors like higher taxes, fuel prices, and electricity prices.
In its statement, Pepkor acknowledged the difficult retail environment it is operating in. It cited factors such as low consumer spending, high unemployment rates, power outages (known as load shedding), and slow economic growth as contributing to the challenges. These issues were then compounded by the arrival of the coronavirus in March. The company had already taken steps to mitigate losses by closing its unprofitable operations in Zimbabwe and is currently finalizing the sale of its business in the country.
Despite the decline in earnings, Pepkor’s revenue from continuing operations actually increased by 6.5% in the first half of the year, reaching 37.55 billion rand ($2.15 billion). However, the decision to focus on cash preservation signifies the severity of the challenges faced by retailers in the current economic climate.
As the coronavirus pandemic continues to disrupt economies worldwide, retailers across the globe are struggling with reduced consumer spending. In response, companies like Pepkor are being forced to reassess their financial strategies and make tough decisions to adapt to changing circumstances. The choice to forego the dividend demonstrates the company’s dedication to effectively managing its cash flow to weather the storm.
In conclusion, Pepkor Holdings’ decision to scrap the dividend for the financial year 2020 is a reflection of the challenging retail environment in South Africa, which has been exacerbated by the ongoing coronavirus crisis. The company’s prioritization of cash preservation is a prudent move in response to declining earnings and subdued consumer spending. As the retail industry continues to navigate through these uncertain times, companies like Pepkor must remain innovative in finding solutions to succeed in this new normal.