Massmart sales growth signals uptick

Massmart, the owner of the Game, Builders Warehouse and Makro retail chains, said product inflation averaged 0.7% while comparable sales increased 8% for the same period. "With the first quarter's sales indicating a return to stability with growth in all categories and divisions, the financial year ahead looks to be solid," the company said.

"The sales growth is in line with expectations, but one has to keep in mind they faced undemanding comparable sales which fell out of bed last year," Nedbank Capital analyst Syd Vianello said Monday. He said Nedbank predicted total sales growth of 15% for next year.

"Food inflation increased quite sharply in September and this could have possibly fed the sales growth too. Should Massmart maintain this growth, 2012 should be a much better year."

The company also said it would have to "balance operating discipline with the investment in growth and the speed of integration. We will also have to balance the sometimes divergent interests of different stakeholders."

Vianello said: "Massmart may be warning shareholders that expansion is expensive and you may not see the growth in the bottom line and the company may still experience growing pains. Another concern is what the company means by divergent interests of different stakeholders. It may well be a warning to shareholders not to expect the huge dividend that they have become accustomed to."

In August, the company said total expenses grew 15.6% due to acquisitions, new stores and the investment in its Cambridge food stores. The group reported an 11.6% increase in sales, a 10.3% increase in trading profit and a 10% increase in headline earnings, excluding transaction costs, for the 52 weeks ended 26 June.

Including these costs, operating profit fell 13.7% and headline earnings decreased 22.5%.

Avior Research retail analyst Simone Kruger said the value-add Walmart brings would be delayed, and highlighted rising costs.

The R16,5bn acquisition of Massmart by Walmart became effective on 20 June after Competition Tribunal approval. Three government departments have subsequently lodged an appeal to be heard by the Competition Appeal Court later this week.

Source: Business Day