An improvement in the consumer economy is vital for Massmart’s sales.Photo: Simphiwe Mbokazi/African News Agency (ANA)
DURBAN - Massmart, Africa’s second largest retail group, is banking on the festive season and Black Friday as the two events that can help increased consumer spending going into the second half of the financial year.

In the six months to end July 1, the group came under pressure as a result of low food price inflation, increase in value added tax (VAT) and fuel costs, which led to a constrained consumer environment.

During the period Massmart reported that its like-for-like sales increased by 1.9 percent to R41.6 billion. The group said the weak sales environment resulted in a gross profit margin of 19.6 percent, and trading profit before interest and tax decreased 19.5 percent to R664.2 million.

However, the group said yesterday that the recent improvement in trading conditions boded well for the company going forward as total sales for the 33 weeks to the end of August 19 were expected to increase by 2.3 percent to R53.2bn, with comparable store sales increasing by 0.4percent. 

Product deflation was estimated at 0.5 percent.

But the group cautioned that the current weakness of the domestic economy and the volatile and uncertain international geopolitical situation - which impacts the oil price and the rand - is expected to persist.

“Assuming no further deterioration in the South African consumer economy for the remainder of 2018, Massmart is cautiously optimistic about the full year’s earnings,” the group said.

Revenue was marginally up to R43.5bn, compared to last year’s R42.6bn, while operating profit before interest fell to R565.3m, down from R815.2m.

Headline earnings per share declined to 96.1cents a share compared to 168.5c compared to last year. The group declared an interim cash dividend of 68c a share.

Chief executive Guy Hayward said very weak consumer confidence resulted in lower demand for durable goods, while significant deflation in most major food commodities impacted the wholesale business.

“We are delighted with our online sales growth of 69 percent, which included a 23 percent increase in average online basket size. It is pleasing that we grew durable goods sales and market share in an environment in which demand for durables is soft as consumers prioritised spending on food,” Hayward said.

Massmart operates four divisions: Massdiscounters, Masswarehouse, Massbuild and Masscash and owns stores like Game, Makro and Builders’ Warehouse.

Massdiscounters, which consists of 142-store general merchandise and food discounter Game, reported 4 percent decline in total sales to R9.1bn.

Masswarehouse total sales of R12.9bn increased by 5.4 percent, while Masscash total sales of R13.1bn increased by 0.3 percent.

Massbuild was a strong performer growing total sales by 7.6 percent to R6.4bn, with comparable sales increasing by 5.7percent and year-to-date product inflation of 2.3 percent.

Massmart shares closed 0.23 percent lower at R110.75 on the JSE yesterday.

-BUSINESS REPORT