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Johannesburg - Massmart [JSE:MSM], the third largest distributor of consumer goods in Africa, has disappointed the market with its latest trading update.
On Wednesday, the group announced that its headline earnings, headline earnings per share, earnings and earnings per share for the 26 weeks to December 27 2009 would be between 16% and 24% lower than previously.
"It's a very poor trading statement, definitely worse than expected," said Shanay Narsi of BoE Private Clients.
One of the major setbacks has been its African operations.
"There's about R80m to R90m worth of foreign exchange losses as a result of the stronger rand," said Narsi.
"A stable or weaker currency will definitely help earnings," said Pallavi Ambekar of Coronation Fund Managers.
Trading in South Africa has also been tepid.
The current environment of highly indebted consumers, low economic growth and job losses have contributed to low sales volumes, said analyst at Cadiz Asset Management Warren Buys.
Massdiscounters division (Game and Dion) only saw sales growth of 0.5%, with price inflation of 0.5%.
This indicates that Massmart is losing ground on the food front to the likes of Shoprite and Spar, said Narsi. In its trading statement released earlier on Wednesday, Shoprite said its South African sales had grown by 14.6% for the six months to December 2009.
"The Massdiscounters brand needs invigoration," Narsi said.
Masswarehouse (Makro) sales grew by 1.5% with inflation of 5.1%.
"This is definitely a surprise on the downside, the market should be disappointed," said Narsi, adding that Massmart's earnings used to be quite resilient earlier in the cycle.
"I think they've got a good strategy, (but) they really need the environment to turn around for them," said Buys.
On Wednesday, Massmart's share price lost more than 3% to close at R86.
- Fin24.com
