No final Massmart dividend after earnings collapse, tough sales
Massmart, one of South Africa’s retail giants, said it would not declare a final dividend after swinging to headline losses of R747.3 million from a R901.2m profit in 2018.
Chief executive Mitchell Slape said total sales jumped 3 percent – below the market expectation – to R93.7 billion. Slape said the South African stores increased sales by 2.7 percent while the rest of its Africa operations rose 6.4 percent.
He said the food and liquor division increased 5.1 percent to R53.5bn from R50.9bn a year earlier. Home Improvement sales were R14.2bn, compared with R13.8bn in 2018, and general merchandises fell 1.3 percent to R25.9bn, compared to R26.3bn a year earlier.
“The sales performance across our major categories is reflective of the spending pattern of a financially constrained consumer who continues to prioritise spending on non-durables over durable goods,” Slape said, adding that the performance of the group, whose brands include Game, Makro and Builders Warehouse during the period was disappointing.
“2019 was a year of under-performance, it was a year of change, reset, and will help us reposition our business better. 2020 will be a year of change and refocusing the business.”
Slape said the group would focus on a turnaround strategy that included moving the business closer to its customers.
In January Massmart announced it had completed a business review resulting in a Section 189 consultation process with unions on plans to close 34 stores - including all DionWired stores and 11 Masscash stores.
This month it said it was going to basics at its Game stores by refocusing on high margin categories, would remove the fresh and frozen offering and reinstate the clothing section.
Slape said that the group was encouraged by Finance Minister Tito Mboweni’s decision to resist calls to raise Value Added Tax when he tabled the 2020 Budget on Wednesday.
“We do believe that any opportunity where you are putting money into the consumers pockets, we can improve consumer buoyancy,” said Slape. The group’s trading profit fell 46.3 percent to R1.1bn from R2.1bn in 2018 as the gross margin eased 54 basis points, with expenses increasing by 5.9 percent. Free cash flow declined to R239.6m in 2019, from R1.2bn in the prior year.
Slape said that in 2019 the group faced trading disruptions including the xenophobic attacks both in South Africa and other parts of Africa. Operations were also disrupted by service delivery protests, as well as load shedding in the first week of December, he said.
Further low lights were that the group reported a 66percent increase in bad debts and a 6percent decline in online sales.
Lulama Qongqo, an investment analyst said: “Massmart is facing so many headwinds internally and externally, therefore, the outcomes of its strategic review are very binary - this will be an interesting one to watch unfold,” she said.