Massmart says Covid-19 restrictions cost it R6bn in sales during 2020

19th February 2021

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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JSE-listed Massmart has recorded a 7.7% decrease in sales to R86.5-billion for 2020.

Sales in the fourth quarter contracted by 4.1% year-on-year, as a result of softer sales over the Black Friday period, in addition to lower foot traffic, especially in regional malls.

The company’s extension of Black Friday promotions throughout the month of November, however, mitigated some of this impact.

Nevertheless, Massmart estimates to have lost sales of R6-billion for the full 2020 year.

Some of the impact of lost sales had been offset by rental relief received from landlords, as well as benefits received from government through the Temporary Employer/Employee Relief Scheme.

Ongoing focus on gross margin management saw Massmart’s total margin percentage continue to improve.

Gross margins in the business have benefited from sales mix changes, especially in the group’s Builders Warehouse business with increased contribution from retail sales, while it has seen improvement in everyday margins in all of its businesses through the application of improved merchandising disciplines.

The group continued to focus on expense management, especially in light of top-line pressures and in line with its turnaround plan.

Massmart has also been able to keep its full-year expenses flat compared with 2019.

The combination of the improvement in gross margin and strong expense management helped to offset the impact of lost sales relating to Covid-19 restrictions.

As a result, the group expects to report a trading profit of between 3% and 8% higher than 2019's trading profit of R1.1-billion.

Meanwhile, on a full-year basis, the group incurred total retrenchment costs of about R132-million. This related to the closure of Dion Wired, the previously announced closure of 11 Masscash stores, the reorganisation of the Game store-level operating model and the reorganisation of certain above-store-level support functions into centralised Centres of Excellence.

As a result of changes in market conditions, the group has recorded goodwill impairment losses relating to the Cambridge and Fruitspot businesses.

Further, the group recorded an impairment loss relating to the Meat Production Facility. Certain store level assets have also been impaired.

Consequently, total impairment losses of about R798-million have been incurred.

The group’s ongoing focus on liquidity, and pro-active management of cash flow, resulted in net debt being some R200-million higher than last year, despite the significant impact of lost sales relating to Covid-19 restrictions.

Average borrowing costs were better than the year before, which resulted in total interests costs being around 3.4% lower than in 2019.

Notwithstanding the impact of the total lost sales owing to Covid-19 restrictions, Massmart expects to report a headline loss per share of 416.2 c to 442.6 c for the 52 weeks ended  December 27, 2020.

Further, following a more comprehensive strategic review, Massmart has taken the decision to divest its interest in an additional 14 Masscash Cash and Carry stores.

This decision is aligned to its previously referenced turnaround objective to optimise the group store portfolio and is enabled by the good progress that the group has made toward consolidating its Makro and Masscash wholesale store base within the Massmart Wholesale Business Unit.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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