Pepkor Shares Plummet as Retailer Forecasts Muted Profit Growth

Pepkor's shares plummeted by as much as 7.7% in early trading on Tuesday after the company forecast muted profit growth due to a subdued retail environment and high comparative base.

The South African discount clothing retailer, which operates stores across various brands including Ackermans, Jet, and Pep, said earnings excluding certain one-off gains and losses are likely to decline by as much as 1% or increase by up to 9% for the year through September 30.

This comes after the company invested heavily in its PlusB banking business, which is expected to cost less than R1 billion. However, Paul Steegers, an analyst at Nedbank Group's corporate and investment banking unit, cut his recommendation on Pepkor to market perform from outperform and set a price target of R22.

Despite this negative outlook, Shaun Chauke and Elena Jouronova, analysts at JPMorgan Chase & Co., remain bullish on the company, retaining their overweight rating. They argue that Pepkor's 9.8% retail sales growth for the 10 months through July compares favourably with recent peer performances.