RetailAnalysis
24 February 2017
Massmart: positive FY results, despite challenges

South Africa-based, Walmart-owned Massmart has said total sales rose 7.7% to ZAR91.3 bn (US$7.1 bn) in 2016, despite a challenging market environment in South Africa and across sub-Saharan Africa more widely.

Focus on costs helps underpin profits

Massmart said total sales rose 7.7%, aided by comparative store sales growth of 5.4% and product inflation of 6.7%. The retailer suggested that the results showed a comparable volume decline of 1.3%. Massmart opened 19 stores, two of which were outside South Africa, driving new space growth by 3.7%. However, the company closed 10 stores, which meant that net space increased by only 1.2%.

The challenges presented by its expansion outside South Africa were underlined by the slowing growth seen outside its home market. Massmart said total sales growth outside South Africa was 11.2% in the full year, or 13.4% at constant exchange rates, a pace much slower than the 23.2% seen in the first six months.

The company pointed to its good margin management and expense control, which helped drive group trading profit by 11.9% to ZAR2.6 bn (US$200.8m), excluding foreign exchange movements and interest. Massmart said group gross margin rose slightly in 2016, to 19.0% versus 18.9% in 2015, due to ‘business-mix and better category management’.

Masswarehouse and Masscash lead sales growth

Out of Massmart’s four divisions, Masswarehouse and Masscash drove the fastest sales growth. Masswarehouse saw sales rise 11.0% to ZAR26.27 bn (US$2.0 bn), while trading profit was up by 4.4% to ZAR1.25 bn (US$96.5m). Masswarehouse saw comparable sales rise by 7.6%, with product inflation of 6.5%. The division’s focus areas of online sales, which doubled in 2016; considered expansion, with one store added and another extended; and growth in the number of Fruitspot facilities helped drive sales growth.

At Masscash sales rose 7.5% to ZAR31.7 bn (US$2.45 bn) driven by comparable sales increased by 7.9% with product inflation of 9.3%. At a business level, Massmart said that ‘Cambridge and Rhino performed well, growing comparable sales above 10%’.

Strategy to remain in short term…

Despite the challenging macroeconomic conditions in South Africa and sub-Saharan Africa more widely, Massmart said it remained committed to its existing strategy. This will see it continue:

1. To drive the growth and profitability of the core South African business over the medium-term;

2. To expand further into Food Retail and the Fresh categories through new stores and our existing formats in South Africa;

3. Sub-Saharan African expansion through opening Builders Warehouse, Game and Masscash stores.

4. To expand, improve and refine our online/ecommerce offerings in DionWired, Makro and Massbuild.

The focus on expanding outside South Africa will see Massmart open 11 new stores, which will add 26% to its selling space, in the next two years. The expansion will occur in markets that Massmart already operates in, with the company’s chief executive, Guy Hayward, ruling out further market entries in the short term. As part of the results presentation, CFO Johannes van Lierop, said that most of the stores planned to be opened outside South Africa will be under the Game banner. The pace of openings will see Massmart maintain its measured strategy of adding up to five stores annually outside its home market.

…Despite on-going tests

Massmart said it would sustain its strategy despite the challenges across its home market and the region. As it announced its full year results, the company also provided an update on the eight-week period to 19 February, which helped to underline the difficulties retailing is facing in 2017. In the eight-week period, Massmart said total sales rose 0.6%, but comparable sales fell by 1.5%. The performance was driven by its sales in South Africa, where it said total and comparable sales grew by 2.5% and 0.4% respectively. However, outside its home market, Massmart said both figures were ‘negative’.

Related subjects:
RetailAnalysis