Massmart profit misses the mark

Johannesburg - Walmart’s South African unit Massmart Holdings [JSE:MSM] posted a 6.1% rise in full-year profit, falling well short of expectations as weak selling prices and rising costs weighed.

The nation’s third-largest retailer by market value said diluted headline earnings per share were 619 cents in the year to end-June, well-below a 656 cents in Reuters poll of 13 analysts.

Stripping out costs related to Walmart’s $2.4bn takeover of a 51% stake in Massmart, headline EPS increased 30.3 cents.

Consumer spending is improving in Africa’s biggest economy due to decades-low interest rates and above-inflation wage hikes, but the outlook is uncertain due to high debt levels and chronic unemployment.

South African retail sales jumped 8.3% year-on-year May, official data showed, beating the 4.7% growth economists had expected.

But Massmart has failed to fully capitalise on improving consumer spending as it spends a chunk of its cash expanding into food retail to take on established players such Shoprite Holdings [JSE:SHP] and Pick 'n Pay Stores [JSE:PIK] .

The company was also hit by weak selling prices, which averaged 1.8%, and above-average increase in the prices of electricity.    

Massmart said sales rose 15.6% to R53bn.

Rival Shoprite also missed forecasts with a 20% rise to 607 cents in full-year profit on Tuesday, as nagging unemployment and rising debt levels put pressure on consumer spending.

Shares in Massmart are little changed so far this year, underperforming a 10% rise in the JSE Top 40 - (Tradeable) [JSE:J200] index.

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