Johannesburg - Massmart Holdings [JSE:MSM], the SA unit of
Walmart Stores reported a 21% drop in first-half profit, hit by costs related
to its deal with the world's biggest retailer.
Massmart, the high volume, low margin retailer that sells
everything from televisions to groceries, said diluted headline earnings per
share totalled 321.7 cents in the six months to end-December compared with
407.3 cents a year earlier.
A South African court last year ordered Massmart to double a
planned fund to develop local suppliers to R240m to win regulatory approval for
Walmart paid $2.4bn for 51% of Massmart.
Excluding that cost, the company said headline EPS would
have shown single-digit growth, reflecting tight margins from an aggressive
cut-price strategy to double market share in food sales.
"As consumer expenditure slowed, we saw increased
discounting amongst most retailers and the inevitable fight to hold or gain
market share," the company said.
Massmart said last week that first-half earnings would
likely drop by as much as 25%.
Massmart, South Africa's third-largest retailer by value, is
expanding into food retailing, pitting it against dominant grocers such as
Shoprite Holdings [JSE:SHP] and Pick n Pay Stores [JSE:PIK].
The Johannesburg-based company aims to take its grocery
market share to as much as 20% in the next few years from 10% now.
Massmart said sales increased 14.7% to R36.1bn. It said
sales for eight weeks to February 17, increased 11%.
"We are concerned that sales growth may be under some
pressure for the remainder of the financial year," the company said.