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Massmart profit down as spending slows

Feb 28 2013 08:34
Reuters

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's acquisition.

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.  

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walmart  |  massmart holdings

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