Johannesburg - Massmart shares slid more than 2 percent during the session yesterday after the retail giant reported in a trading update that sales had increased 8.7 percent in the six months to June. The group said total sales had increased to R42.3 billion for the period with annual product inflation estimated at 5.8 percent.
However, the shares improved to close trade 3.14 percent higher at R140.45 on the JSE. US retail giant Walmart paid $2.5bn to acquire a 51 percent stake in Massmart in 2011 with high expectations from Massmart, but the slowing economy has put pressure on already struggling consumers.
Struggling sector
“The sales trends commented upon in the Massmart sales update for the 21 weeks to May 22 remain prevalent, although sales growth in the five-week period since that update were adversely impacted by further weakness in certain African countries’ currencies and disruption to trading during the recent unrest in Tshwane,” Massmart said. “The former impacted Game and Massbuild, while both factors impacted Masscash.”
Massmart, the continent's second-biggest retailer, owns brands such as Game, Makro, Builder’s Warehouse and CBW. It is the second-largest distributor of consumer goods in Africa, the largest retailer of general merchandise, liquor and home improvement equipment and wholesaler of basic foods.
The company said its four divisions showed growth in the period, with Massdiscounters increasing its sales by 7.6 percent, Masswarehouse surged 9.2 percent, Massbuild was up 5.8 percent and Masscash gained 10.3 percent.
Ian Cruickshanks, an independent analyst, said: “Massmart is operating in a struggling sector because consumer confidence is low in the country at the moment. The sector is battling. Consumer spending is too low, with consumers finding it difficult to cope because of the continued rise in food prices, electricity and transport costs.
“I am not surprised that Massmart is struggling. On surface you would think 8.7 percent sales growth sounds impressive, but that is fuelled by new store openings, which gave Massmart the boost. It is not looking good for established stores.”
He added that Massmart had lost almost 20 percent on its share price since Walmart bought the controlling stake in 2011.
“With a price earnings ratio of 26 and a share price around R136, the company is heavily priced and I won’t buy the stock at those levels. However, Massmart is not a bad company, but it is operating in a bad sector currently,” he said.
* With additional reporting by Manyane Manyane
BUSINESS REPORT