JSE-listed consumer goods distributor Massmart Holdings on Thursday reported a 2.9% year-on-year increase in sales to R90.9-billion for the year ended December 31, 2018.

Its South African stores generate 91.3% of group sales.

This was despite constrained consumer spending, higher taxes and a low-growth economy.

Group trading profit before interest and taxes declined by 16.8% to R2.1-billion, compared with R2.5-billion in 2017.

Headline earnings decreased by 31.7% to R901-million, compared with R1.3-billion in 2017, while headline earnings, excluding restructuring costs, decreased by 22.9% to R1-billion, compared with R1.3-billion in 2017.

Earnings before interest, taxes, depreciation and amortisation decreased by 15.4% year-on-year to R3-billion.

Massmart said its shareholders will be entitled to elect to receive a cash dividend of 140c apiece, or additional shares.

Massmart in 2018 restructured some of its business functions, while also moving two of its divisions’ head offices from Durban to Johannesburg, which cost R160-million, to effect savings of R52-million a year.

CFO Hans van Lierop said this caused some business disruption and employee uncertainty.  

Massmart comprises four divisions – Massdiscounters (Game and DionWired), Masswarehouse (Makro and Fruitspot), Massbuild (Builders Warehouse) and Masscash (Jumbo Wholesale, Rhino Cash & Carry and Cambridge Food), operating 436 stores across 13 sub-Saharan African countries.

The company reported that gross margins declined slightly from 19.63% to 19.45%, owing to pressure in its Game stores, although this was offset by higher retail participation in Builders Warehouse stores.

Massmart’s omni-channel focus, which is designed to improve customer choice and experience, saw aggregate online sales increase by 56%. The company’s four e-commerce points of presence – Makro, Game, DionWired and Builders Warehouse – registered growth of 74% in online traffic during 2018.

The company’s African growth plans remain on track, with total sales from stores outside of South Africa having grown by around 3.9% during the year. Massmart added more than 13 000 m2 of trading space outside of South Africa, with more stores to be opened this year.

During 2018, Massmart opened 19 stores and closed six stores, resulting in a net trading space increase of 2.2% to 1.64-million square meters. The African trading space growth will represent 32.7% of new space between 2019 and 2021, concentrated in Kenya and Zambia.

Over the next three years, Massmart aims to increase its net trading space by 39 195 m2.

Massmart plans to add 47 new stores between 2019 and 2021.

CEO Guy Hayward said that, owing to the “disappointing” 2018 financial performance, the company is driving towards group services that encompass logistics, supply chain and information technology capabilities.

Other goals for the current year include improving Game’s profitability, delivering structurally lower operating costs by improving group resource use, and achieving supply chain efficiency through optimisation of regional distribution centres and vehicles, thereby increasing the volume of product moved through the supply chain network, which reduces costs and stockholding.

DIVISIONAL PERFORMANCE

Massdiscounters now has 171 stores, compared with 166 stores in 2017, in South Africa, Botswana, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda and Zambia.

The division generated R19.7-billion in sales, compared with R20-billion in 2017, and R32-million in trading profit, compared with R373-million trading profit in 2017, as a result of Game impediments.

This division comprises 560 828 m2 of space, compared to 548 544 m² of space in 2017. Massmart plans to add 14 stores for this division in 2019.

Masswarehouse currently has 21 stores, compared with 21 stores in 2017, all in South Africa, comprising 231 021 m² of space. The division generated R28.8-billion of sales, compared with R27-billion in 2017, while generating R1.1-billion in trading profit, compared with R1.3-billion in 2017.

Massmart plans to open only one Makro store this year.

Massbuild now has 114 stores, unchanged from 2017, in South Africa, Mozambique and Zambia, comprising 468 155 m² of space. This division generated R13.8-billion of sales, compared with R13-billion in 2017, while generating R749-million of trading profit, compared with R735-million in 2017.

Massmart expects to add 11 stores for this division in 2019, both in South Africa and outside the country.

Masscash currently comprises 130 stores, compared with 128 stores in 2017, in South Africa, comprising 388 714 m² of space. This division generated R28.7-billion of sales, compared with R28.1-billion in 2017, while generating R188-million of trading profit, compared with R127-million in 2017.

Massmart will add 17 stores for this division this year, of which three will be in Zambia and one in Lesotho.