Massmart braces for grim interim earnings
Interim profit could fall by nearly 70%, thanks to restructuring costs, the Walmart-owned retailer says
Massmart, owner of household brands such as Makro and Game, is braced for more pain as its lower-earning customers are being left out of the country’s economic recovery.
The subsidiary of Walmart, the biggest retailer in the world, said interim earnings could fall around 70% to end-March. Investors punished the company by pushing its shares down almost a fifth, the largest one-day drop on record.
Earnings would be hit by restructuring costs of about R166m, with some of its staff departing instead of relocating from Durban to Johannesburg.
"Whilst the positive impact of SA’s political renewal has been good for business confidence, there is little sign currently of any economic recovery among our lower-and middle-income consumers," said Massmart CEO Guy Hayward.
On Thursday, the company gave some indication of the rising pressure on SA’s consumers in a frank trading update that pointed to a tough year for retailers. It is also a signal that rising confidence since the election of President Cyril Ramaphosa is not yet translating to real gains for consumers.
Massmart’s transparency about its difficulties was laudable, with all indications that additional pressure was coming, said independent retail analyst Syd Vianello.
Consumers were likely to be on the receiving end of another fuel increase of about R1 at the end of May — something the company did not mention — while the one percentage point rise in value-added tax from April was likely to start filtering through from June, he said.
Taxi fares had recently climbed about 10%, and further increases were likely.
"Those numbers show consumers are under serious pressure. Political uncertainty does impact consumer purchasing patterns, whether you like it or not," Vianello said.
Domestic risks, including the land expropriation issue, could weigh on retail spending for a long time, particularly when it came to durable goods.
Hayward said in Thursday’s statement that the retailer had started a section 189 retrenchment process.
Massmart said it expected to report on August 23 that its headline earnings per share for the six months to end-June had declined 58%-68%. Excluding restructuring costs, headline earnings per share were expected to decline 36%-46%.
Massmart’s share price closed 17.96% down at R115, a six-month low, wiping out R5.4bn in shareholder value. It has declined 30.76% so far in May and 17.56% so far in 2018. The JSE’s general retail index has lost 7.53% in 2018.
This story has been amended to reflect that earnings would be hit by restructuring costs of about R166m. It was previously reported that the amount was R300m.