An uphill battle for Massmart

Cost-cutting helps to ease the pain but retailer has a long way to go before its high-volume model becomes effective

Another day, another excuse. For almost a decade, retailer Massmart has used variations of “the dog ate my homework” to explain its disappointing performance.

Nothing changed in the Walmart-controlled retailer’s 26 weeks to June.

This time round, however, Massmart CEO Guy Hayward had an excuse that seemingly can’t be faulted.

“The six months to June 2017 ranked among the most difficult trading conditions in recent memory, not just in SA but in most of the 12 other African countries where we have stores,” Hayward told investors at a results presentation.

Arguably, Massmart looks to have done well to eke out a 2.3% rise in headline EPS (HEPS). Or did it?

Thanks to the wonders of modern accounting there is not always just one HEPS figure to be considered. In Massmart’s case, the inclusion or exclusion of noncash foreign-exchange losses and gains made a big difference in the latest reporting period.

The 2.3% rise in HEPS includes noncash foreign-exchange movements.

They went in Massmart’s favour this time around, with the recorded loss after tax falling 84% to just R13.6m from R85.4m in the comparable 2016 half year.

If foreign-exchange movements are excluded the picture looks very different.

Far from rising, Massmart’s HEPS came in 15.7% down. Operating profit before foreignexchange adjustments dived by a huge 17.2%.

Whichever HEPS figure investors choose to focus on, it required manning the pumps to achieve.

“We knew we were facing sales and margin pressure so we decided to control the controllables: costs and stocks,” explained Hayward.

Total costs across the group were lowered by 0.2% against a 7.5% rise in the first half