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Johannesburg - Retailer Massmart Holdings [JSE:MSM] on Thursday posted a rise in annual profit, on the back of operational cut costs and solid growth in its online division.
In a challenging consumer environment Massmart, which operates retailers such as Makro, Builders Warehouse and Game, said it was pleased that it could still turn a profit, despite consumers’ low confidence in the South African economy. The group pointed out that its 2017 financial year was a 53-week trading period which, it said,
complicates meaningful comparisons with the prior year’s 52-week period.
Group operating profit, excluding foreign exchange movements and interest, increased by 4.8% to R2.8bn while headline earnings increased by 14.0% to R1.5bn.
Massmart said its total sales for its 52-week period in 2017 grew 1% to R92.1bn, while comparable store sales declined 0.8%. Product inflation was 2.0%.
But for the 53 weeks to December 31 2017 Massmart's total sales performed even better, increasing to R93.7bn, representing 2.7% growth compared to the 52 weeks to December 25 2016.
Star performers included its online divisions, where sales increased by 47%, with well-managed expense control helping it beat the tough economic times.
The group, which operates 423 stores across 13 sub-Saharan countries, stated that its expense management only had total expense growth of 1.2% for the 52-week period while comparable expenses were 1.3% lower than 2016.
It also increased its durables market share significantly, despite low consumer demand for durable goods.
Massmart said the challenging consumer environment included three factors that impacted its 2017 performance: weak consumer confidence which resulted in low consumer demand for durable goods, significant deflation in most major commodities in the wholesale businesses and the impact of generally weaker African economies and currencies.
Weak consumer confidence
Massmart CEO Guy Hayward said Massmart was cognisant of the weak consumer confidence in South Africa.
“This resulted in lower demand for durable goods,” he said. “Significant deflation in most major commodities impacted the wholesale business and we were negatively affected by generally weaker African economies and currencies.”
While these headline figures are indicative of the exceedingly difficult consumer environment that persisted in the period, they mask a much-improved performance in the second half of 2017, Hayward explained.
In this second half, three of the four divisions recorded higher comparable sales growth than the second half of 2016, with year-to-date product inflation falling from 3.2% in June to 2.0% December over the same period, he said.
“Adjusting for product inflation shows that all divisions reported higher real comparable sales in the second half of 2017."
It was against this external backdrop that management continued its rigorous focus on controllable factors, Hayward said.
While the constrained consumer environment had a significant impact on Massmart’s durable good sales, the group said it continued to increase market share in durable departments including major appliances, audio-visual, information technology and gaming.
“This market share growth ensures Massmart is well positioned for an upturn in the consumer environment,” Hayward said.
He said growth in food & liquor sales was also pleasing, with many food and grocery categories growing ahead of the market, including convenience instant meals, cereals, snacks and carbonated drinks.
Massmart commented that as can be expected in this tough environment, food & liquor sales were better than those of durable goods.
The group also reported that the total sales from its South African stores grew by 1.5%, while comparable sales of the overall market declined by 0.2%.
Business outside South Africa
Massmart’s total sales outside South Africa grew by 3.5%, with comparable store sales growth in the market of 0.8%.
Hayward highlighted the fact that Massmart stores in Africa delivered the highest productivity on the continent at R181m.
“Our average sales per ex-SA store is more than four times higher than that of our competitors,” he said, adding that the group would continue investing in stores outside the country.
"We will increase space by 35% over the next three years,” he said.
Black Friday
Massmart recorded another bumper Black Friday, with over R1bn in sales and improved margin management
“A useful portion of this success was enabled by our continued strategy to grow our omnichannel offering, resulting in the group’s aggregate online sales growing by 47% for 2017,” said Hayward.
Massmart shares were up 5.15% on the JSE, trading at R149.79 at around 09:10.
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