Massmart will focus on improving its operations, as the legal aspects of the Walmart transaction have been put to bed.
Group chief executive Grant Pattison said on Thursday: “The legal aspects of the Walmart transaction and the integration activities are complete and we are more focused on improving our operations and implementing our strategic agenda.”
During the second half of last year, the Competition Appeal Court ruled that Massmart must increase its Supplier Development Fund from R100 million to R240m and ordered the retailer to re-employ the 503 employees who had been retrenched prior to the transaction.
The retailer also had to deal with Walmart transaction costs and integration costs. Direct costs incurred for the Walmart integration and merger during its first half to December last year were R205.2m, including R65m for integration activities and an additional R140m for the Supplier Development Fund. Massmart said the Walmart-related costs would normalise over the next 12 months to about R50m annually.
For the 26 weeks to December 23, Massmart increased retail sales by 14.7 percent to R36.1 billion from a year earlier. Comparable sales were up 7.3 percent and product inflation increased to 3.7 percent.
One of Massmart’s strategic aims is to grow its share of the food retail market, which is estimated at 3 percent.
Gross profit rose 18.4 percent to R6.6bn. However, operating profit and headline earnings declined by 17.7 percent and 21.2 percent, respectively. Massmart said excluding the costs related to the Walmart merger, operating profit rose by 6.1 percent and headline earnings by 5.8 percent.
“I cannot say that we are pleased with the results. There has been a lot of constraints in the past period from the transaction, which impacted on the earnings. But I am not disappointed,” Pattison said.
Absa Investments analyst Chris Gilmour said Massmart’s top line growth, excluding new store openings, was one of the best among its peers. However, the retailer’s bottom line performance was not so great.
Another reason, apart from the integration and transaction costs, for the decline in headline earnings was the massive devaluation of the Malawian currency. “But this is one of the risks that retailers face when doing business elsewhere in Africa,” he said.
He added that stores elsewhere in Africa had performed well. Stores operating outside of South Africa represented 7.3 percent of total sales and increased sales by 9.5 percent.
Pattison said Massmart was a bit worried because this year had started slowly, saying that if comparable sales growth could pick up slightly in percentage terms to return to 7 percent, then the group would have a good year ahead.
For the first eight weeks of the current half to February 17, total sales increased by 11.4 percent and comparable sales by 5.7 percent.
“If the poor trading continues then we are in for a much tougher year,” he said.
He expected the consumer environment to remain difficult for the remainder of the financial year, which would affect sales growth.
Massbuild, which trades under brands such as Builders Warehouse and Builders Express, performed well, with sales increasing by 10 percent and comparable sales up 9.7 percent.
Trading profit in the Massdiscounters segment fell 14.8 percent as sales in Game stores in South Africa slowed down.
Pattison said Massmart had spent about R3bn to R4bn on re-engineering its supply chain over the past five years. The first phase was due for completion by the end of this year.
“By then, we will have completed three Massdiscounters regional distribution centres, three Makro regional warehouses, one Cambridge distribution centre and one Massbuild national distribution centre,” he said.
The shares closed unchanged at R186.50 yesterday. - The Star