Slower economic growth has impacted on South African retailer Massmart’s sales for the six months ended June, as lower income customers remained under economic pressure, CEO Grant Pattison said on Thursday. 

Speaking at the group’s results presentation in Johannesburg, he said that growth in Africa, outside South Africa, continued to be a priority for the group, particularly in food retail expansion.

Massmart reported an 8.9% increase in sales for the six months ended June to R32.37-billion, while comparable sales increased by 5.5%.

Sales from Massmart’s African businesses grew by 10.7% during the period and made up 7.6% of the total sales.

The JSE-listed group, which owns stores such as Game, Makro and DionWired, reported a 9.4% decrease in headline earnings adjusted for the effect of foreign exchange movements.

Massmart chief operating officer Guy Hayward stated that it had been a tough period and while there had been some volume growth, it had been slow.

“The company’s gross profit, that increased by 6.8%, grew by less than its sales, which is symptomatic of a constrained economic environment,” he added.
A cash dividend of 146c a share was declared, which was in line with that declared in 2012.

“Despite the results being lower than we would ideally prefer, we are feeling much better about the business than we did a year ago,” Pattison said, adding that the group’s results mostly reflected the declining economic growth and declining disposable income levels and that the company did not expect to see an improvement in the short term.

“We expect to see sales growth under pressure for the remainder of the year and will focus on gaining market share through superior retail offerings,” Pattison said.

Meanwhile, he stated that the group had completed its yearly three-year planning process and that the board had approved five strategic priorities.

The first was that it had to adjust its future investment programme to reduce costs as its depreciation and occupancy costs had increased by 1% of sales, owing to Massmart’s significant investment programme over the past years.

Further, Massmart would also focus on a more disciplined implementation of its divisional strategies that targeted operating disciplines and means of putting the customer first.

The third objective was to shift the group’s focus to increase Massmart’s growth in Africa, which would include shutting down underperforming stores in South Africa.

Pattison stated that the delivery of category innovation in fresh food, clothing and e-commerce was also a strategic priority, adding that progress was being made in these areas.

Lastly, Massmart would also work towards consolidating its accountability programmes relating to supplier development, governance, sustainability and compliance with the aim of building trust among its stakeholders.

Pattison further stated that the group was concerned about the potential effects of rising energy, water and other basic costs, as well as potential wage negotiations and job cuts.

DIVISIONAL PERFORMANCE

Pattison added that the disappointing performance of Game SA, which only showed a 1% increase in comparable sales during the period, put severe pressure on the profitability of the group’s Massdiscounters division, that saw its trading profit before interest and tax decrease by 39.6%.

The total sales of the Massdiscount division increased 9% with comparable sales growing 3.7%. The roll-out of Fresh at Game continued with 31 stores now offering Fresh. Weak comparable sales growth of 1% at Game SA caused a decline in profit, although Game Africa and DionWired performed well.

Masswarehouse grew its total sales by 13.7% with comparable sales growth of 6.9%. Massmart acquired control of seven Makro sites for a cash consideration of R575-million, which would reduce the group’s exposure to existing rental costs.

Massbuild grew its comparable sales by 9%, while the total sales of the Masscash division increased by 5.6% with comparable sales growing 4.2%, slightly bolstered by the acquisition of Rhino Cash & Carry in March 2012. The division opened its first Mozambique wholesale store in Xai Xai in April 2013, which was already reporting positive trading trends.