Wal-Mart's Mass­mart profit drops 26pc on cur­rency pres­sure

The Pak Banker - - COMPANIES/BOSS -

Mass­mart Hold­ings Ltd., the South African food and goods whole­saler con­trolled by Wal-Mart Stores Inc., said firsthalf profit fell 26 per­cent as the com­pany held down prices amid stiff com­pe­ti­tion and low con­sumer spend­ing.

Profit ex­clud­ing one-time items fell to 269.3 mil­lion rand ($20.6 mil­lion) from 364 mil­lion rand a year ear­lier, the Johannesburg-based com­pany said in a state­ment on Thurs­day. That com­pared with a 26 per­cent de­cline a year ear­lier. Sales rose 9.1 per­cent to 39 bil­lion rand.

South African un­em­ploy­ment of 25 per­cent, power cuts and ris­ing fuel prices are putting pres­sure on shop­pers to cut down on ma­jor pur­chases. Con­sumer con­fi­dence dropped to a 14-year low in the sec­ond quar­ter of this year. Mass­mart faces tough com­pe­ti­tion through­out its busi­ness and ex­pects the dif­fi­cult trad­ing en­vi­ron­ment to con­tinue, it said.

"All par­tic­i­pants -- sup­pli­ers, ser­vice providers, re­tail­ers and whole­salers -- are com­pet­ing keenly for prof­itabil­ity and mar­ket share, caus­ing height­ened mar­gin pres­sure across the re­tail value chain," Mass­mart said. The com­pany ex­pects fur­ther pres­sure on its South African busi­ness from food in­fla­tion, in­ter­est-rate rises and the weaker rand, it said. While sales of large ap­pli­ances, hi-tech, mul­ti­me­dia and home im­prove­ment have re­mained steady, they may be im­pacted should up­per­in­come cus­tomers' con­fi­dence lev­els fall fur­ther, Mass­mart said.

"While we re­main con­fi­dent and res­o­lute about de­liv­er­ing our strate­gic pri­or­i­ties, we are con­cerned that for the next 12 - 18 months the South African and most sub-Sa­ha­ran con­sumer economies are un­likely to be sup­port­ive."

Mass­mart shares fell as much as 6.1 per­cent in early trade in Johannesburg, and re­cov­ered to be 3.7 per­cent higher at 120 rand as of 9:58 a.m. The stock has de­creased 16 per­cent this year, in­clud­ing an 8.5 per­cent fall af­ter a trad­ing up­date on Aug. 19. It's the big­gest de­cliner on the FTSE/JSE Africa Gen­eral Re­tail­ers In­dex.

The com­pany made a net for­eignex­change trans­la­tion loss of 106.7 mil­lion rand, "mostly as a re­sult of the weak­en­ing of the av­er­age bas­ket of African cur­ren­cies against the rand," it said. The weak­en­ing of the lo­cal cur­rency against the U.S. dol­lar ex­ac­er­bated the loss.

Ex­pan­sion into other sub-Sa­ha­ran African coun­tries re­mains a pri­or­ity and Mass­mart plans to open eight new stores in the re­gion in the next two years, the com­pany said. It's also ex­pand­ing e-com­merce of­fer­ings and seek­ing to grow its food re­tail busi­ness.

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