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Johannesburg - Massmart Holdings [JSE:MSM], the retailer controlled by Walmart, fell the most in a month after saying price competition at the Game department-store chain caused profitability to lag behind forecasts.
Massmart dropped as much as 3.5% to R148.75, the steepest intraday decline since April 29, and traded 1.8% lower as of 14:43 in Johannesburg. The stock has gained 6% this year, in contrast to a 4.1% slide at Shoprite [JSE:SHP].
Comparable sales at Game, which sells goods ranging from washing machines to food, rose 6.8% in the 20 weeks through May 17, Massmart said in a statement on Wednesday. Revenue on that basis at Game stores in Africa outside the company’s home market rose 1.2%.
“Pricing remains extreme as players fight for share, and so whilst we are seeing margin recovery in Game, it is not as strong as might be expected,” Massmart CEO Guy Hayward said at the annual shareholders meeting at the retailer’s Johannesburg headquarters.
“Trading across most African countries is tough for diverse reasons, but common factors include lower resource prices and US dollar strength.”
Economic growth in South Africa slowed in the first quarter as power outages curbed manufacturing output. The rand has fallen 4.8% against the dollar this year and 14% in the past 12 months.
“The market is looking for a revival in Game’s margins and investors will be asking how long we’ll still see difficulties,” in that unit, Kyle Rollinson, an analyst at Avior Capital Markets in Johannesburg with an underperform recommendation on Massmart, said by phone.
