Boxer’s first year out the Pick n Pay nest? Strong margins, good turnover, but investors aren’t clapping just yet. Here's what CEO Marek Masojada told Currency about the pressures ahead.
Summary
- Strong debut, but market wary – Boxer delivered a 13.2% sales increase to R42.3bn and a 5.4% trading margin, better than IPO promises — yet shares fell 3.87%, ending at R64.77.
- Margins face pressure – New costs like a 30,000m² Tongaat distribution centre and debt from Pick n Pay (R850m) are expected to weigh on future margins.
- Still growing and aiming to pay – With 60 new stores planned this year and a Capitec loyalty partnership underway, Boxer says a first dividend is on the horizon in H2 2025.
Boxer’s margins are the envy of its former parent Pick n Pay – but a relentless consumer market is taking its toll.
The market’s response to Boxer’s first set of annual financial statements wasn’t exactly ecstatic – though the discount retailer has produced a trading profit margin ahead of its IPO promises, of 5.4% on a 13.2% increase in turnover, to R42.3bn for the 53 weeks ended March 2. Its shares slipped 3.87% on Monday, however, taking the stock further away from the post-listing peak of R72.59 in March, and closer to where it traded on its November listing day, ending at R64.77.
While its profit margin easily stacks up with Shoprite, and far outpaces former parent Pick n Pay, trading certainly isn’t getting any easier, notwithstanding Boxer’s commitment to grow its stores by 60 this year. CEO Marek Masojada spoke to Currency about the results.
Boxer CEO Marek Masojada. Pictures: Supplied.
You seem to be guiding the market to expect pressure on margins this year – why?
At the time of our IPO we anticipated the margin to be a little bit lower in the listed environment just by nature of some of the new expenditure we were incurring and what happened, as we moved towards our new year-end, some of those expenses were only in there for a short amount of time so clearly as they annualise there will be some impact.
We also have our new Tongaat distribution centre [DC] coming onstream in October this year. It’ll be a full 30,000m2 facility and effectively we redistribute stores across our other six DCs to make sure they’re well-balanced and efficiently serving the stores closest to them, but there is capacity for 200-odd stores and that comes with a cost and we’ll have to carry that.
And then [you have] a consumer under pressure buying products on promotion and that means margin management becomes difficult.
Sales price inflation is falling – does that not lead to higher volumes?
You do see very flat volume growth as we talk to our existing stores. Obviously new stores create volume growth and hence the need for distribution centres etc. I think the point is that consumers are under massive pressure in general and there are many other competing areas where they’re spending their money. Hence there’s a bit of a squeeze going on.
You were asked in your results presentation about shoppers trading up, though. I understood that to mean they’re in a better situation?
It’s an interesting one – what we’re seeing is customers shopping more and more off leaflet or promotional items. So if last year we promoted 2kg of washing powder, and this year we’re promoting 3kg, they’ll go for the 3kg because it’s cheaper per kilo. So customers are trading up in terms of pack sizes.
Synonymous with our discount format is the way in which we talk to consumers in terms of combo deals, or six items for a certain price; consumers are buying more of those. You’re giving a significant discount for buying a bigger basket, but it’s not necessarily a margin increase.
One analyst that we spoke to was a little worried about trading densities in your existing stores. Is that something you’re concerned about?
That talks to some of the things we have to do to entice the customer into the store. The launch of our loyalty programme last year has kind of given us another arrow in our quiver to create excitement. The Capitec promotion we started today [where customers swipe their Boxer rewards cards, pay with their Capitec cards, and get R50 in rewards] is a new thing: two powerful brands working together to talk to the customer. We’re not just going to win our customer by doing the same thing – we’ve got to innovate and give value back etc. It’s all about driving volume and like for like growth.
Was that arrangement something that took a while to bring together?
We interact with Capitec a lot in our market – we’re neighbours in many of the shopping centres we’re in and the cultures in the two companies are very aligned, and we’ve got a customer base that hugely overlaps. This is an example of the first steps in that direction.
How’s your expansion going? You’ve planned 25 superstores and 35 liquor stores this year, are those easy enough to put up?
Each store, whether it’s big or small, is obviously a massive project. If you’re opening a 30,000m2 shopping centre and you’re going in as a double or triple anchor, those projects take two or three years to come to fruition. So a big focus at the moment is going in as second or third anchors into existing shopping centres where the landlord can add a box on or we take over retailers that have closed their stores – like in the Massmart stable. We really are flexible in the way we look at space.
One of the discussion points in your results was the debt you took on from Pick n Pay as part of the whole unbundling and separation. But it sounds as if you don’t like having any debt at all?
We never had debt in my entire career here at Boxer; we’ve now got a term debt of R850m, and we have a flexible facility and are able to pay it down as we go, which is our full intention. It is our intention to get rid of that. We like the slightly bigger cash on the balance sheet so we can trade more and be more agile in our approach to price increases.
But all things being equal, investors can expect dividends from the first half?
The guidance given is that after the first-half results this year [August] we will then assess, but we have full intention to pay an interim dividend in the second half.
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