Johannesburg - Massmart has cut its dividend by almost half in the first half of the year as the trading environment continues to be difficult.
The listed retailer, majority owned by US-based Walmart, said its sales had gained despite the ongoing difficult trading environment, although these were boosted by new stores opening.
Comparable stores' sales growth was 6.4 percent, with product inflation of 5.8 percent. Overall inflation is 6 percent, its lowest level this year so far. Massmart is home to brands such as Game, DionWired and Builders’ Warehouse.
In a statement on Thursday, the company said sales performances across its major product categories reflect the economic pressures within the South African consumer environment.
Food and liquor sales gained 13.2 percent, while general merchandise only grew 3.4 percent.
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CEO Guy Hayward notes consumers are putting of purchases where they can, trading down and trimming spending on durable goods. He adds consumers are skewing spending towards emi- and non-durable items, away from durable items such as fridges and furniture.
In the 26 weeks to June, the company reported sales up 8.7 percent to R42.3 billion, while operating profit before interest gained 19.5 percent to R819.1 million. Headline earnings after foreign exchange movements gained 19 percent to R320.6 million. Despite its gains, the company trimmed its dividend 49.2 percent to 74.1c.
Hayward says Massmart’s deal-orientated approach say it growing market share across all major categories. “The work we have been doing here is beginning to make in-roads. An independent price survey conducted by Retail Price Watch identified Cambridge Food as being the cheapest retailer in the staples’ and beverages’ categories, while Makro was found to be the cheapest in the cereals and porridge category,” Hayward says.
“This has meant general merchandise sales have softened while food sales have been stronger.”
During the period, Massmart opened 9 stores, including one outside South Africa, which represents new space growth of 2.4 percent. “Our portfolio of 405 stores includes 38 outside South Africa and these represent 9.3 percent of the group's sales.”
For the 34 weeks to August 21, total sales increased by 8.3 percent and comparable sales increased by 5.9 percent, it says.
“ For the remainder of 2016, the South African economic environment will likely continue to constrain consumer spending across key group categories including general merchandise and home improvement/DIY, while our substantial food and liquor categories will likely continue to outperform.”
Despite the current uncertainty, if the currency strengthens and food pricing move into disinflation, it is possible that trading in 2017 may be relatively better than 2016.
“Trading conditions in most non-SA countries where we have stores are unlikely to deteriorate further provided there are no exogenous shocks.
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