South African retailer Massmart Holdings said its growth remained "steady" in the 20 weeks to 11 November but warned on margins for the second half.
Notwithstanding "political uncertainty, both nationally and globally", South African consumer spending has been "relatively stable", Massmart said as it recorded total sales growth of 16.2% in the period. Comparable-store sales grew 7.3%.
"Overall, sales growth in both food and home improvement has been strong, while we have seen some weakness in general merchandise sales growth, particularly in the last few weeks," the retailer said.
It added: "While the level of sales is pleasing and gross margins remain steady, the group's net margins are unlikely to expand for the six months ending December 2012 or the year to December 2013 as a consequence of cost pressures arising from our investments in growth, high service-cost inflation and the investment in food retail."
Massmart opened six stores since July, a 3.3% increase in trading space. These included two Makro stores, three Game stores and one Rhino outlet.
Notwithstanding political uncertainty, both nationally and globally, South Africanconsumer spending has been relatively stable. The local economic environment hasbeen characterised by low, but positive, real wage growth, stable employment levels,and rising inflation, albeit within the Reserve Bank?s targeted range.
In this environment, Massmart?s sales growth remained steady, although we haveexperienced some softening of this growth in the last few weeks.
For the 20 weeks ended 11 November 2012, Massmart?s total sales growth was 16.2%and comparable sales growth was 7.3%, with financial year-to-date sales inflationrunning at 3.9%.
Total and comparable sales growths (and year-to-date inflation) in each Divisionrespectively are:
- 6.8%, 1.2% (0.4% inflation) in Massdiscounters;- 25.6%, 8.3% (3.6% inflation) in Masswarehouse;- 9.9% ,8.7% (2.8% inflation) in Massbuild; and- 18.2%, 9.9% (6.6% inflation) in Masscash.
We have opened six stores since July 2012, a 3.3% increasein trading space. Thesewere two Makro stores, three Game stores and one Rhino store. We have alsoconverted four Game stores to Foodco, bringing the total to 24 Game Foodco stores.
Overall, sales growth in both Food and Home Improvement has been strong, while wehave seen some weakness in General Merchandise sales growth, particularly in the lastfew weeks.
It appears that credit extension into the low- and middle-income markets may be nearsaturation, although the middle- to upper-income markets still have some opportunity totake on more credit.
The economic effect of labour unrest in other industry sectors has resulted in weakerretail sales in certain of those affected regions, although not material to Group sales.
We are, of course, pleased that the legal challenges to the Walmart Transaction areresolved and we are progressing well with the implementation of the associatedconditions. A total of 237 employees were re-instated in compliance with theCompetition Tribunal?s order and most of these employees have been in the Group?semploy since May 2012. Arising from the Competition Appeal Court?s ruling on theSupplier Development Fund, an additional non-cash charge of R140m will be raised inthe six months to December 2012.
The Integration process with Walmart is complete and whilst ongoing annual costs ofapproximately R50m a year are expected from 2013 onwards, we will disclose thesecosts separately for the last time to December 2012.
During the period we invested R37 million, including an R8 million contribution from theWalmart Foundation, in socio-economic development projects. Recognising the impactof under-nutrition we invested R26 million in nutrition projects, prioritising school nutritionafter consultation with the Department of Basic Education.
We initiated our 2012 Festive Season by donating three tons of Nutri-meal to Food BankSouth Africa. Other major projects during this period included donating food hampers tofamilies of SANDF members serving on external deployment and the provision of back-to-school stationery hampers to children of police officers who have died in the line ofduty, both of these in partnership with our suppliers.
Shareholders and the investment community are reminded that in order to align withWalmart?s financial year-end, Massmart will be changing its financial year-end toDecember and will therefore be reporting a six-month financial period ending December2012.
We have planned for Christmas trading to be at the levels of sales growth we haveexperienced so far in this financial year. Rising food inflation should support food salesgrowth, although the increased spending on food may likely put pressure on GeneralMerchandise sales. The Home Improvement market appears to be improving,albeitslightly.
While the level of sales is pleasing and gross margins remain steady, the Group?s netmargins are unlikely to expand for the six months ending December 2012 or the year toDecember 2013 as a consequence of cost pressures arising from our investments ingrowth, high service-cost inflation and the investment in Food Retail.
Our next sales update will be released in early January 2013.
The information included in this statement has not been reviewed or reported on byMassmart?s external auditors.
Johannesburg21 November 2012Sponsor: Deutsche Securities (SA) Proprietary LtdDate: 21/11/2012 01:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE')
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