FILE PHOTO: Customers push trolleys as they shop at a Pick n Pay store at the Trade Route Mall, in Lenasia outside Johannesburg, South Africa, February 8, 2023. REUTERS/Siphiwe Sibeko/File Photo

Pick n Pay, South Africa’s second largest grocery chain, slumped after announcing a share sale and plans to unbundle its fast growing Boxer chain as it struggles to cope with surging costs and competition from larger rival Shoprite Holdings.

“Our balance sheet needs to be restructured and stabilised,” Chief Executive Officer Sean Summers said in a statement. “This is the appropriate action, at the right time, to help our turnaround strategy.’’

Shares of the Cape Town based retailer dropped as much as 17.5 percent as it announced it may need to ask investors for as much as 4 billion rand ($208 million) in a rights offer by the middle of the year to stabilise the business. The stock is down more than 20 percent in the past six months versus a 4.7 percent gain by Shoprite Holdings.

The company said in a statement to the stock exchange in Johannesburg it will report an earnings, headline earnings and pro-forma headline earnings loss for the year ending February 28 mainly due to under-performance by its main Pick n Pay business, exacerbated by power cuts and restructuring and supply chain costs.

Pick n Pay recalled former CEO Summer last year as it reported a half-year loss and scrapped its dividend. The company has battled to win back customers from competitors including Shoprite and luxury retailer Woolworths Holdings. A new strategy introduced by former CEO Pieter Boone last year failed to turn the tide, forcing the company to recall Summers.

Last month, the company appointed a new leadership team, saying it was a key step in returning its main supermarket business to growth, while growing the Online business, Boxer and Clothing chains. The new executives would focus on simplifying the product offer to customers and buying merchandise, it said.

“We have totally reorganised our leadership team and strengthened and simplified our operational structure to drive rapid decision making, focusing on better in-store execution and excellent customer service,” said Summers.

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“Cutting debt and creating a sustainable platform for investment in growth is the next big step towards unlocking the Group’s clear potential, and more details of our turnaround plan will be announced when we release our results in May.”

For the 47-weeks to January 21, the company said Pick n Pay Supermarkets reported a 0.1 percent drop in sales while inventory sales rose. The underperformance, together with investments in Boxer, the clothing and online business asap! almost doubled total debt to 7.2 billion rand.

The Boxer business meanwhile lifted sales by 17.1% during the same period, with like-for-like revenue up 7.3%. Pick n Pay Clothing stores reported sales up 17.5% as the Pick n Pay online revenue jumped 75.8 percent.