Massmart enjoys forex windfall
Retailer bemoans decline in consumers’ disposable income
WALMART-owned Massmart yesterday reported an impressive 51.2% rise in first-half headline earnings per share to 225.2c, thanks to a “large positive swing” in the exchange rate as the rand weakened against African currencies, writes Zeenat Moorad.
But excluding its foreign exchange windfall in the half year, the retailer’s headline earnings per share fell 9.9% to 180.8c, reflecting a decline in SA’s economic growth and in disposable income levels — a situation not expected to improve in the short term.
Massmart’s peers — Shoprite, Pick n Pay and Foschini — have also drawn attention to waning consumer spending as rising utility costs, debt and a lack of jobs weigh on disposable income.
“(Masssmart’s) sales have slowed as lower-income customers remain under pressure,” CEO Grant Pattison said.
Total sales grew by 8.9%, comparable sales inched up 5.5%.
WALMART-owned Massmart yesterday reported an impressive 51.2% rise in its first-half headline earnings per share to 225.2c, thanks to a “large positive swing” in the exchange rate as the rand weakened against African currencies.
But excluding its foreign exchange windfall, the retailer said its headline earnings per share fell 9.9% to 180.8c, reflecting a decline in SA’s economic growth and in disposable income levels — a situation that was not expected to improve in the short term. The retailer is not alone in bemoaning the state of trading conditions. Its peers Shoprite, Pick n Pay and Foschini have also drawn attention to waning consumer spending as rising utility costs, debt and a lack of jobs weigh on disposable income.
“The group’s sales have slowed as lower-income customers remain under economic pressure,” CEO Grant Pattison said.
Total sales grew by 8.9%, while comparable sales inched up 5.5%. Operating expenses rose faster than sales, which saw the group’s operating profit before foreign exchange movements slipping 1% to R730m.
Daniel Isaacs, an equity analyst at 36ONE Asset Management, said the group’s results were “disappointing”. “The Walmart integration costs were higher than the market had expected.
“Everyone’s been waiting for efficiencies to come through such that the growth in the operating line is larger than the growth in the revenue line … guys are putting their hope on margin expansion, but that’s now in question. Overall it’s a good business, but the results don’t support the valuation,” he said.
Game also came under significant pressure. “There’s not much money left over at the end of the pay cheque for household goods because of inflation. We also don’t think we’ve done as good a job as we could. We’ve been restoring some operating disciplines like instocks and customer service,” Mr Pattison said.
Game SA’s comparable sales growth was only 1% in the period — this weighed on the overall Massdiscounters performance, where divisional comparable sales rose 3.7% and total sales rose 9%. “They are going to try a revamped look, and that’s way past time. The layout of Game looks like it hasn’t changed in like 20 years, I think it’s partly to blame. They also experienced quite low inflation in general merchandise. The introduction of food has done well, though,” Mr Isaacs said.
Sales in Massmart’s African businesses rose by 10.7%.
Over the next three years it wants to open 10-15 stores with a focus on East and West Africa.
Massmart will introduce George, a clothing brand owned by Asda, Walmart’s UK subsidiary, into Game and Makro stores first through babywear and an “Essentials” range that includes socks and underwear.
The group will test clothing through pop-up stores in three shopping malls later in the year.
Absa Investments analyst Chris Gilmour said George clothing would do very well in SA.
“It is cheap and relatively well made. It is functional rather than fashionable, though it is not unfashionable. If they get the pricing right, they could be onto a big winner with George.”