Mass­mart con­tin­ues to strug­gle

High-vol­ume, low-mar­gin busi­ness model is feel­ing the heat — and ex­e­cu­tion has also been a big prob­lem

Financial Mail - - MONEY&INVESTING - Stafford Thomas thomass@fm.co.za

Mass­mart’s long-suf­fer­ing share­hold­ers have been on the re­ceiv­ing end of dis­ap­point­ment for nearly a decade.

The trend seems set to con­tinue.

The re­tailer showed a sliver of hope in its past year to De­cem­ber when it turned in a

15.8% rise in head­line EPS (HEPS), its best show­ing since be­com­ing a 51%-owned sub­sidiary of Wal­mart in June 2011.

It proved short-lived, how­ever.

Mass­mart’s per­for­mance went back into a nose­dive in the 26 weeks to June 25, with sales in its SA op­er­a­tions limp­ing in a mere 1.7% up with the help of in­ter­nal prod­uct in­fla­tion of 3.2%. On a like-for-like store ba­sis, sales vol­umes were down 3%.

Far­ing even worse, sales recorded by nonsa op­er­a­tions (which nor­mally ac­count for about 9% of group sales) slumped 11.9%. The big dam­age, notes Mass­mart, was caused by weak­ness of do­mes­tic cur­ren­cies against the rand.

Over­all, it left Mass­mart’s half-year sales up a to­ken 0.5% at R42.5bn.

“They are dis­as­trous re­sults,” says Alec Abra­ham of Sas­fin Se­cu­ri­ties.

Nadim Mo­hamed of First Av­enue In­vest­ment Man­age­ment is equally crit­i­cal of Mass­mart’s show­ing. “You could put down half of its bad per­for­mance to mar­ket con­di­tions but the other half is the re­sult of poor ex­e­cu­tion,” he says.

Un­der­scor­ing Mo­hamed’s crit­i­cism is Mass­mart’s his­tory of poor per­for­mance that set in prior to the Wal­mart deal. Re­flect­ing this, the re­tailer’s HEPS in 2016 of 597.8c was still 10% be­low the peak level of 663c recorded eight years ear­lier.

It has not been for want of ex­pan­sion. Be­tween 2008 and 2016 the group in­creased its num­ber of stores from 242 to 403 and more than dou­bled sales from R39.8bn to R84.7bn.

One of the big­ger dis­ap­point­ments in the lat­est half year was the per­for­mance of Mass­mart’s food and liquor op­er­a­tions, which lifted sales by 3% — a level that, given gen­eral food price in­fla­tion, in­di­cates a vol­ume de­cline of about 3%-4%.

Mass­mart’s food and liquor op­er­a­tions, which ac­counted for 57% of group sales in 2016, are spread across three di­vi­sions: Mass­dis­coun­ters through Foodco branded out­lets in its

Game stores, Mass­ware­house through its

Makro mega-stores and Mass­cash through its whole­sale units and 51 lower-in­come-fo­cused re­tail stores un­der the Cam­bridge and Jumbo brands.

Mass­mart found it­self hope­lessly out­matched by Sho­prite which, in the 52 weeks to July 3, re­ported a 10.1% rise in sales through its SA su­per­mar­kets.

It rep­re­sents a sales vol­ume rise of 4.2% and a like-for-like store im­prove­ment of 6.9%.

Even Sho­prite’s non-sa su­per­mar­kets came to the party. With An­golan op­er­a­tions lead­ing

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