Massmart Holding’s share price took a massive dip of 7 percent yesterday on the JSE after it flagged a “disappointing” trading update, saying that in the 26 weeks ended June 26, 2022, it expected its headline loss to balloon.
This as the retailer fails to turn its fortunes around, with sales falling over the past two years.
The shares traded at R33.76 in intraday trade and have decreased by 27.3 percent in the past three years.
Massmart said its headline loss was expected to broaden to between R910.3 million to R974.3m, compared to R645m in the previous period - a drop of between 41 percent to 51 percent.
Headline earnings per share were likely to fall by between 40.7 percent to 50.7 percent to between R420.5m to R450.3m.
Massmart’s total group sales for the period amounted to R41.3 billion, being broadly in line with the same period last year.
Sales from continuing operations, which excludes Cambridge, Rhino, and Massfresh, amounted to R38.1bn, an increase of 1.9 percent over the prior year period, with comparable store sales from continuing operations increasing by 4.3 percent.
Total South African store sales continued to be impacted by stores damaged in the July 2021 civil unrest remained flat, while comparable store sales increased by 2.4 percent.
Total sales measured in rands, from its rest of Africa stores increased by 1.6 percent.
Liquor sales performed strongly, with like-on-like sales on a continuing operations basis increasing by 21.3 percent over the same period last year.
“This reflects sales recovery in our Hospitality, Restaurant and Catering (Horeca) and wholesale customer base,” the group said.
The group said a recovery in the construction sector increased Builder’s stores’ trade sales.
Food sales increased by 6.4 percent on a like-for-like basis over the same period last year, also supported by a recovery in the Horeca sector.
“As previously reported, sales relating to general merchandise, our second largest product category by value, have been softer as consumers prioritised non-durable goods spending in the context of rapidly increasing food, energy and transport cost inflation. Like-on-like General Merchandise sales declined by 1.4 percent compared to the same period last year," it said.
Last month its subsidiary Game announced that its 115 stores across the country had been “refreshed” to provide consumers with a better store experience among other initiatives to boost sales.
Meanwhile, the owner of Game and Makro, said yesterday rising costs put its profit margins under pressure, which contributed to its growing losses.
It also said its trading result was also negatively impacted by the once-off negotiated lease exit settlement cost of R184m relating to the Riverhorse Distribution Centre that was destroyed in the July civil unrest.
Anchor Capital equity analyst Zinhle Mayekiso said Massmart’s trading statement for the period was disappointing.
“They reported weak sales growth, despite moderate internal price inflation growth, points to lower volume sales during the period.
“In addition to flat top-line growth, various headwinds such as higher input costs and once-off costs during the period have ultimately negatively impacted earnings growth,” she said.
Mayekiso said it was too early to say if Massmart’s strategy was working as the current operational period has been mired by various headwinds, one being constrained consumer disposable incomes, which has negatively affected its businesses to varying degrees.
“As a result, the current headwinds can mask positive strategic turnaround effects, especially during economic downturns or in periods in which the consumer experiences elevated disposable income constraints. Nevertheless, we note that Massmart’s near-term outlook appears to be challenging given the current tough macro-environment,” she said.
Massmart’s competitor retailers this month, excluding Woolworths, have reported stellar results, showing a recovery after Covid-19 and the civil unrest damage to stores last year.
Rival Pick n Pay said its group sales had increased 10.7 percent for the first 18 weeks of its 2023 financial year to July 3, while Shoprite said on a 52-week basis, sales increased by 12.6 percent.