Mass­mart needs to get it to­gether

Finweek English Edition - - INSIDE - BY SHOKS MZOLO

Nearly four years af­ter US re­tailer Wal­mart bought a 51% stake in dis­count re­tailer Mass­mart, the group is strug­gling to im­prove the prof­itabil­ity of its lo­cal oper­a­tions and make in­roads on the rest of the con­ti­nent. Re­cently re­leased re­sults are not con­vinc­ing of the com­pany’s abil­ity to bet­ter its per­for­mance, but the com­pany is acutely aware of its short­com­ings and is work­ing hard on im­prov­ing, says CEO Guy Hayward.

Mass­mart, which re­leased un­der­whelm­ing in­terim re­sults for the 26 weeks ended 28 June, has seen its share price de­cline nearly 20% since the start of the year, un­der­per­form­ing com­peti­tors like Shoprite (down 4.3%), Pick n Pay (up 22.5%) and Wool­worths (up 29.1%). The Mass­mart share price is down 45% from its May 2013 peak of R205.04, and the share is now trad­ing at 2010 lev­els (also see page 32).

At the time of the 2011 deal, which saw the global ti­tan pay R17bn to take a 51% stake in the lo­cal re­tail group, pun­dits spoke of the “Wal­mart ef­fect”. CEO Guy Hayward half-jests that the fact that the Wal­mart magic is not yet ap­par­ent should put a stop to crit­i­cism that arose when the deal was first struck, when it was claimed that the NYSElisted ti­tan would f lood SA with cheap goods, hurt­ing lo­cal in­dus­try and jobs. Long-term ben­e­fits, he says, will de­rive by way of crit­i­cal mass and in­no­va­tion – from IT to dis­tri­bu­tion cen­tres – and other crit­i­cal com­pet­i­tive fac­tors.

In the mean­time, the re­tailer is strug­gling to keep up with com­peti­tors. In the June pe­riod, Mass­mart’s head­line earn­ings dropped 26% to R269.3m, partly due to for­eign ex­change losses. A sim­i­lar fall in per­cent­age terms was recorded last year. At R306.6m now, net prof­its have soft­ened by well over a third since the first half of 2013 de­spite rev­enue in­creas­ing by 9% to R39bn over the pe­riod.

Wool­worths, in con­trast, posted a 19.4% jump in head­line earn­ings to R3.3bn and a 4.3% rise in net profit to R3.1bn for the year to June. Rev­enue in­creased 45.4% to R58.1bn thanks to the in­clu­sion of David Jones, an Aus­tralian busi­ness t hat t he Cape Town-based re­tailer splurged R23bn on last year. Its per­for­mance was partly buffered by its fo­cus on high LSMs,

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