Analysts await Woolworths, Massmart news

Official data released last week showed retail sales at constant prices dipped 2.6% versus the same month last year after a 3.4% dive in May, prolonging the decline in the economy's third-biggest sector to levels last seen in 1999.

Analysts have warned the retail sector faces an even tougher trading period for the rest of the year.

Absa Asset Management Private Clients analyst Chris Gilmour said for a group of Massmart's size, anticipated earnings growth released in a recent trading update of 15% to 19% “is outstanding”.

“It will be interesting to see the segmental breakdown, though, to see how the various divisions have withstood the consumer spending downturn,” Gilmour said.

He said Woolworths' strategy of rolling out many new stores would pay off in the long term. “We have to see through this difficult period to fully appreciate how clever the strategy is,” Gilmour said.

In a trading update for the 53 weeks to June, Woolworths confirmed that middle-income earners — the bulk of its customers — had been hit hard by rising living costs. In its assessment of the retail group's performance in the second half of the period, Woolworths said there had been a marked deterioration in trading conditions.

“Trading conditions have deteriorated substantially, with a further decline in consumer spending as a result of interest rate hikes and increases in fuel and food prices. We have accordingly adjusted our opening price-point offer and our range is now extremely competitive.”

Woolworths said despite the tough trading period, growth in pretax profit and noncomparable items in the second half of the 53 weeks was expected to be positive.

Massmart, home to Makro, Game and Builders Warehouse, last week said it expected headline earnings and headline earnings per share for the 53 weeks to June to be between 20% and 24% higher than the equivalent previous year figures.

Adjusting for the 53rd week reduces the expected annual growth in headline earnings per share to between 15% and 19%. Earnings and earnings per share for the 53 weeks are expected to be between 23% and 27% higher than for the year before.

Source: Business Day

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