; Massmart: upbeat about future – The Citizen

Massmart: upbeat about future

LIST OF PRIORITIES. Massmart CEO Grant Pattison said the group's <br />priorities for 2014 include investing in new retail formats and new <br />categories – both in SA and in East and West Africa. Massmart will <br />also open more low-income home improvement stores locally and will expand its e-commerce strategy. Picture: Desiree Swart.

LIST OF PRIORITIES. Massmart CEO Grant Pattison said the group's
priorities for 2014 include investing in new retail formats and new
categories – both in SA and in East and West Africa. Massmart will
also open more low-income home improvement stores locally and will expand its e-commerce strategy. Picture: Desiree Swart.

Local retail group Mass-mart reported lower earnings – once the extra trading week and currency gain was stripped out – for the year to December.

However, despite the bleak economic outlook, management is unusually upbeat about the year.

“We feel we are through the supply chain integration (following the Walmart merger); we are over our entrance into food retail, and our focus on operational issues last year has paid off,” Massmart CEO Grant Pattison said yesterday. “We are cautious about the economy but confident about the company.”

Sales for the first eight weeks of the new financial year have grown 9.5% and comparable numbers are up 7.7%. “This is a significant turnaround on last year’s 3.8%. Something is definitely changing.”

Group sales for the 53-week period ended December 29 2013 grew 9.8% to R72.3bn. For the 52-week period, total and comparable sales growths were 7.5% and 3.8% respectively. Product inflation averaged 2.7% suggesting real comparable volume growth of 1.1%.

Headline earnings increased by 29.9% (52 weeks: 19.9%) and headline EPS increased by 29.5% (52 weeks: 19.5%) over the prior year. Adjusting for the effect of the foreign exchange movements results in an increase in headline earnings of 7.7% to R2.1bn (52 weeks: decrease of 0.9%).

Currently, one of the strongest retail categories is home maintenance so it’s no surprise that the best performing division was Massbuild which saw sales increase 8.2% on the back of 4.1% inflation. Profit before interest and tax increased 26.7%.

Store openings continued at a pace with the opening of six Builders Warehouse stores, five Builders Express and two of the new format Builders Superstore, aimed at lower-income consumers. In addition a new store was opened in Botswana and two in Mozambique. This is not a case of using space growth to gain market share, says Pattison. “This is a strategy that can backfire. We are adding space in under-serviced areas and taking marketshare by being a better retailer.”

The trouble kids are Game and to a lesser extent Masscash which includes the retail and wholesale cash ‘n carry businesses.

Mass discounters, which houses Game and increasingly popular Dion Wired, saw profit before interest and tax fall 39%. This is a business that is exposed to low-income pressures, says Pattison. “But we are feeling good about the business.” Game stores in Africa grew sales 20%, FoodCo grew 20% and Dion Wired 20%.

Wholesale trading was difficult given the pressure on lower-income consumers, low product inflation and a very competitive market.

Pattison added that the group’s being affected by the “unusual retail cycle”. Across the retail sector, sales of non-durables and semi-durables are out-performing those of durables – a situation typical of a higher interest rate cycle. “With interest rates so low one would expect the opposite sales trends,” says Pattison.

“This suggests that cyclical retailers are starting a rising interest rate cycle already under some pressure, and so managing cyclicality is becoming a key management skill.” This supports its strategy of diversifying its business into less cyclical geographies (Africa) and categories, namely clothing and food. “We are becoming more of a portfolio player.”

The dividend is unchanged from last year at 233.75c, bringing the total dividend up to 421c, unchanged from last year.

 

 

 

 

 

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