Fin24

Massmart sees margin pressure

2012-11-21 19:10

Johannesburg - Massmart Holdings [JSE:MSM] expects no growth in margins until the end of 2013 as the unit of Wal-Mart Stores forges ahead with an aggressive cut-price strategy to double market share in food sales.

Massmart, 51%-owned by Wal-Mart, said sales increased 16% in the 20 weeks to November 11, helped by new stores that added 3.3% to its trading space. Same store sales were up 7.3% with price increases averaging nearly 4%.

"While the level of sales is pleasing and gross margins remain steady, the group's net margins are unlikely to expand for the six months ending December 2012 or the year to December 2013," Grant Pattison, Massmart's chief executive officer, said.

The company's operating profit margin fell to 3.7% in the year to end-June from 5% a year earlier.

Massmart, whose deal with Wal-Mart was completed last year, is expanding its food retail business, challenging South Africa's dominant grocers such as Shoprite, Pick n Pay and Spar.

The company aims to take its food retail market share in South Africa to as much as 20% over five years from 10% now.

Shares in Massmart rose 0.6% to R178.01, in line with the JSE Top-40 index.