The interim results of JSE-listed retail group Massmart, owned by retail multinational Walmart, demonstrate that the company has stabilised its operations and is delivering on its turnaround plan, CEO Mitchell Slape said on August 27.

The group's turnaround plan is delivering expected outcomes and it driving efficiency into the business.

The group had achieved R1.1-billion worth of savings ahead of its three-year plan to reduce expenses by R1.8-billion, and would continue on its strategy of expense savings, centralised procurement and leveraging the new structure of the business, he said in a presentation of the group's results for the six months ended June 27.

Sales achieved during the half-year grew to R37.4-billion, up from the R35.3-billion achieved during the comparable period in 2020.

Earnings before interest, taxes, depreciation and amortisation grew by 45.4% to R2.11-billion, up from R1.45-billion during the same period in 2020. The group realised a R792.1-million operating profit, up 760% from the R92.1-million profit posted for the prior comparable period.

Massmart's strategy has reduced group losses, with headline losses from continuing operations of R358.5-million, 56.8% lower than the headline loss of R830.5-million reported for the interim period in 2020.

Losses for the 26-week interim period were R774.1-million, 14% lower than the R899.6-million loss reported for the same period in 2020.

Further, total group headline loss was R645.4-million, down 40.8% from the total group headline loss of R1.09-billion during the prior period in 2020. Total group loss for the interim period was R1.07-billion, or 8.1% lower than the R1.16-billion loss during the interim period in 2020.

The group completely reorganised and its new operating model has moved to a customer-focused business structure with two divisions of wholesales and retail, while internal business support across the group has been centralised, says Slape.

"On the e-commerce front, we are building initiatives to aggressively grow the business and we are centralising our e-commerce offerings and will make enhancements to our websites. During the first half of the year, we also made the full acquisition of last-mile delivery company OneDrop."

The group's wholesale and retail divisions continue to be impacted by the Covid-19 trade restrictions, as the core hotel, catering and restaurant market remains impacted by trading restrictions and restrictions on movement, while low- and middle-income consumers are constrained in terms of their ability to spend on discretionary items, he says.

"In spite of the difficult environment, the group's performance has improved in many ways. Our cost reset delivered savings of R377-million during the first half of this year, and we have thus far achieved R1.1-billion of yearly savings out of a targeted total of R1.8-billion within three years," said Slape.

Expenses were 2.4% lower year-on-year and, while sales grew by 6.1% compared to the first-half interim period during 2020, sales remain 6% below 2019 levels, which means opportunities remain to grow to these levels, noted Massmart CFO Mohammed Abdool-Samad.

"The cost reset programme remains on track to deliver on the target of R1.8-billion in savings. Total expenses declined by 2.4% and depreciation and amortisation costs were 2.7% lower, mainly owing to rental renegotiations and meeting International Financial Reporting Standards 16 requirements [which are focused on lease reporting standards].

"The reduced rental costs are R180-million achieved since the start of the programme. Other operating costs also declined and the cost reset contributed R236-million to cost reductions, including lower consulting, information technology and travel costs, among others," he pointed out.

SADC FOCUS
Meanwhile, Slape also announced that Massmart would divest from its 14 Game stores in five markets in Eastern and Western Africa. The group has started with formal sales processes and is in discussions with potential buyers.

"The performance and the complexity of running these businesses needed to be addressed," he commented during his presentation.

Massmart's leaders, nevertheless, remain convinced that Game stores in the Southern African Development Community region, including South Africa, can return to profitability.

Pilot stores that have new outlays and a mix of promotions and everyday low prices have contributed to double-digit growth in average basket size and average sales growth of 13%. Thus far, 64 Game stores have been revamped, said Slape.

The group aims for Game to reach break-even within about 12 months, but the Game leadership team has also focused on creating new customer value propositions, which have proven successful in the pilot stores and according to consumer sentiments during surveys.

Meanwhile, Massmart is also focusing on optimising its supply chain and it decided during the first half of 2020 to replace its 15 existing supply chain facilities with three distribution centres in Cape Town, Durban and Johannesburg.

The supply chain will be smaller and more focused, but will improve how the group serves its brick-and-mortar retail outlets and is also part of the work to build the company's distribution network for e-commerce in the future.

Additionally, click-and-collect trading models are a significant and growing part of the business, and an important part of how the group wants to be relevant to its customers, said Slape.

"We have hundreds of store locations that can facilitate click-and-collect transactions. Our challenge is how we can bring our online and e-commerce presence together. We foresee future opportunities to have items delivered to and picked up at any of the retail outlets to maximise customer convenience."

However, Massmart is also investigating other ways to meet customers, and is seeking to acquire on-demand delivery company OneCart.

Massmart also receives technical support from Walmart's global operations, especially the Walmart India team. Walmart North America Last Mile Delivery VP Sylvester John leads the Massmart e-commerce team.

"Our focus overall for e-commerce is to gather the building blocks and form a coherent whole. We are investing in e-commerce and are engaging with new ways to reach our customers. We are leveraging this to grow and improve, and an effective e-commerce platform will also create wholesale opportunities as well," said Slape.