Massmart continues to struggle

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

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