Wavering consumer confidence impacts Massmart’s trading performance

Image source:

Massmart Holdings has released sales and trading update for the 26 weeks ended on the 27th of June 2021, reporting total sales amounting to R41.3 billion – an increase of 4.4% on the comparative period in 2020 with store sales increasing by 4.8%.

Sales update

While sales in 2020 were impacted by the various lockdown restrictions, total sales from the retailer’s South African stores for the 26-week period increased by 5.9% with comparable store sales increasing by 6.6%.

Total sales from the remainder of its African stores were impacted by currency fluctuations during the first half of the year, decreasing by 10.1% (measured in Rands) with comparable store sales decreasing by 11.2%. However, when measured in constant currency, total sales relating to its African stores have increased by 1.6%, with comparable store sales increasing by 0.3%.

While the partial easing of Covid-19-related trading restrictions marked slightly better trading conditions for the reporting period, further Covid-19 waves of infection prompted more liquor bans, extended levels of lockdown and curfews which has resulted in rising unemployment and has consequently adversely impacted consumer confidence.

Makro’s total sales of R13.7 billion increased by 13.5% over the prior year, while total sales in Massmart’s Cash & Carry business of R9.3 billion were 2.3% lower than the comparative period in 2020. Food sales remained under pressure, decreasing by 2.9% in Makro and 8.0% in Cash & Carry due to ongoing lower activity in the corporate, hospitality, restaurant, and catering industries.

However, liquor and general merchandise sales performed well with total liquor sales in its combined wholesale business 36.9% higher than 2020, which was impacted by the ban on liquor sales between April and May.

Builders has continued to see strong performance with total sales of R7.2 billion, 24.0% better than 2020 with comparable sales growing by 22.0%. This was mainly driven by strong retail demand. However, trade sales continue to be muted due to the slowdown in the construction industry with Builders restricted from trading for most of April 2020.

Foot traffic in most super and reginal malls and retail centres remain constrained as consumers prefer to avoid crowded indoor spaces. This has had a consequence on Game’s total sales of R7.6 billion, 7.6% lower than the comparative period last year with comparable store sales being 6.9% lower.

South African store sales decreased by 4.6% with comparable stores decreasing by 3.7% with the remainder of its African stores’ sales decreasing by 18.6% in Rands for both total and comparable stores and decreasing by 5.0% in constant currency.

Total sales in Cambridge of R3.6 billion were 9.4% lower than the same period in 2020, decreasing by 9.6% on a comparable store basis. Sales trends indicate that customers in this segment of the market are mostly impacted by the pressures of increased unemployment and lower disposable income.

Trading statement for the 26-week period ended 27th of June 2021

The sluggish recovery in South Africa’s economy, ongoing concerns around Covid-19 infections and resultant lockdowns and restrictions on the sales of goods and movement of people, has impacted Massmart’s trading performance.

While sales have recovered compared to the same period in 2020, the retailer continues to see sales pressures persist in Game, Cambridge, and wholesale food and liquor.

However, focus on trading discipline, driving everyday low prices while maintaining its competitive pricing gap and positive impact from sales mix changes has continued to support the group’s enhanced gross profit margin percentages.

At the same time, expense control and focused cost savings initiatives continue to deliver results ahead of expectations with total expenses expected to be lower than the comparative period in 2020.

The combination of these trading principles and cost control, supported by overall sales growth, has supported its improved trading profits with its group trading profit expected to be between 751% to 771% better than the trading profit of R92 million reported in 2020.

The retailer expects earnings to be adversely affected by the impairment of the carrying value of assets in Game of approximately R570 million, as well as retrenchment costs relating to the reorganisation of certain home office support functions.

In addition, interest costs are expected to improve on the prior year due to improved levels of average borrowings. As announced, the sales process of the Cambridge and Massfresh businesses continue, and the results are treated as discontinued operations.

Update on the impact of the civil unrest

A total of 43 Massmart stores and two distribution centres were directly impacted in KwaZulu-Natal and Gauteng with additional stores having been closed for a short period of time considering safety concerns.

All stores that were not directly impacted reopened within one week, excluding the Makro store in Cornubia, Durban, which remained closed until the end of July due to air quality concerns stemming from fire damage from a neighbouring chemical storage facility.

Of the 43 impacted stores, operations in 8 stores have restarted and, excluding the stores that sustained structural damage, most stores are expected to be open for trade in the coming weeks.