Massmart reflects ‘subdued consumer’
PROSPECTS for the retail sector remain weak and are unlikely to improve this year, as confirmed by Massmart’s interim sales update released on Monday.
In the 26 weeks to June 25, Massmart recorded R42.5-billion in sales, representing an increase of 0.5% compared with the year-earlier period. Comparable store sales fell 1.6%. Product inflation was estimated at 3.2%.
Massmart’s share price initially dipped more than 2% after the announcement, but bounced back into marginally positive territory.
“I don’t know if there was anyone who was massively disappointed by the update,” Old Mutual Investment Group consumer and industrial sector analyst Brian Pyle said.
“Nobody really expected anything else other than what Massmart reported today. People are expecting tough times and the update shows it. That said, these numbers are weak.”
Comparable store sales fell at most of the company’s trading divisions.
Like-for-like sales fell 3.5% at Massdiscounters, by 0.2% at Massbuild and 3.3% at Masscash. Masswarehouse grew comparable sales by 1.5% with inflation of 3.9%.
Mergence Investment Managers portfolio manager Peter Takaendesa said the food side of the business performed better than nonfood categories. Sales growth in food was 3%. In general merchandise it fell 2.9%.
“As we saw in the recently reported Woolworths numbers, the trend of better food sales relative to nonfood consumer goods is evident in Massmart’s numbers. Consumers are largely in survival mode and discretionary items have to take a back seat for now.”
The biggest concern for all retailers was the downward trend in growth rates to levels much lower than cost inflation. This came at a cost-to-profit margin, said Takaendesa.
For Massmart, he expected a technical improvement in the sales rate for the rest of the year, but a stronger recovery was only likely later next year “and could be better if we get an interest rate cut sooner”.
Ashburton Investments said that it preferred Woolworths in this sector.
Woolworths said it expected its adjusted headline earnings per share for the year to June 25 to fall between 5% and 10%.
“Massmart’s update shows the really poor consumer environment,” Ashburton portfolio manager Wayne McCurrie said. “All consumer firms are suffering the same – a subdued consumer in recession.” — BDLive