Tough times slow Massmart growth

Image credit: Dean Hutton via Bloomberg

In a trading update, Massmart said total sales for the 53 weeks to December 2017 increased 2.7% from 2016 to R93.7bn. Total sales for 2017 grew 1% to R92.1bn in the 52 weeks to December but comparable store sales dropped 0.8%.

The retailer is the second-largest distributor of consumer goods in Africa, operating in 13 countries in sub-Saharan Africa through the group's four operating divisions.

A tough trading environment characterised by weak economic growth and a stronger rand cut the retailer's growth. Like many other retailers operating in SA in 2017, the effects of reduced consumer spending affected the business. The company's South African stores went up 1.8%, while comparable store sales in the country declined 0.2%.

Retail sales in SA contracted in the first months of 2017, weighed down by consumer confidence sliding to record lows in 2017 as political uncertainty and inflation cut discretionary spending, but have since recovered.

Sales at Massmart's Massdiscounters, which houses the DionWired and Game stores, decreased 2.8% with inflation of -2.5%. Masswarehouse, which is comprised of Makro and The Fruit Spot, increased 3.9% with inflation of 2.3%.

Massmart's DIY and home improvement division, Massbuild, increased 2.4% with inflation of 3.7%, while Masscash increased only 0.4%.

But Massmart said there had been a recovery in the second half of 2017, with improved comparable sales performances in both the Massbuild and Masswarehouse divisions in SA, which it attributed to effective management of debt.

"Management of Massmart's operating expenses and working capital remains effective," Massmart said.

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Portfolio manager at Mergence Investment managers Peter Takaendesa said Massmart reported on a mixed picture, which pointed to some improvement in volume but the numbers had not fully recovered. "Sales are not inspiring across the retail sector," he said.

Takaendesa said pricing was a huge factor for consumers in 2017 and many retailers resorted to lowering prices to draw large numbers.

"Consumers were going for a trade-off and saying to retailers, 'if you lower your prices we will buy more and vice versa'," said Takaendesa.

Massmart has also had to contend with a stronger rand, which negatively affected revenue from other African countries. For the 52-week period total sales from stores outside SA grew 3.5%, with comparable store sales showing 0.8% growth when measured in currencies such as the Ghanaian cedi, Mozambican metical and Nigerian naira.

However, when measured in rands, it points to a decline of -4.8% and -7%.

The market responded positively to the trading update with the share price climbing 3.21% to close at R144.50.

Source: Business Day