Massmart results reflect downturn

Wholesale retailer Massmart posted a 10.4 percent increase in total sales in the 52 weeks to last month, boosted largely by inflation. However, sales also reflected the group's first real sales decline in a number of years, attributed to a significant drop in the Massbuild division and a change in the group's British American Tobacco South Africa (Batsa) wholesaling model.

In the year to June, the parent company of Game, Dion and Makro posted a rise in sales to R43.1 billion, but there was a marked slowdown in the second half of the year, analysts said.

Comparable store sales increased by 8.2 percent while sales for the group's 52 weeks compared with last year's 53 weeks increased by 8.4 percent.

Werner Smit, an equity analyst at Thebe Securities, said turnover growth for the period was less than inflation at the time, which equated to negative real sales. "It looks as if the good times are over," Smit said.

Some departments performed better than others.

Massdiscounters, which includes Game and Dion, increased sales by 10.6 percent, while Masswarehouse pushed sales up by 12 percent.

"Massbuild did not fare that well, which in turn hurt group figures," Smit said. Two years ago the Massbuild division was the group's star performer with sales increasing 29 percent to R2.5bn in six months. But this time sales rose marginally by 0.7 percent after they fell by 3.7 percent in the previous year.

In Masscash the change to Batsa's cigarette wholesaling model cut sales growth by about 4.9 percent. Batsa changed its distribution model making it attractive for retailers to buy directly from them, thereby bypassing wholesalers.

Massmart's chief financial officer, Guy Hayward, said the group still believed it was seeing a prolonged downturn but its business model was sound.

"Massmart sells so much product to so many people that we can give a reliable snapshot of South Africa's consumer trends," Hayward said.

Recent figures by Statistics SA showed consumer spending had slowed which, according to Hayward, was reflected in the group's results.

The group said it was waiting for the South African Commercial, Catering and Allied Workers' Union to come back regarding dates with the Commission for Conciliation, Mediation and Arbitration after it threatened to strike over pay and working conditions.

Massmart shares closed 0.56 percent down at R80.50.

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