Wal-Mart’s Massmart Sees Slower Growth as Credit Debt Climbs

Massmart Holdings Ltd. (MSM), the African food and general goods retailer controlled by Wal-Mart Stores Inc. (WMT), has seen an increase in the use of credit cards that may weigh on sales, Chief Executive Officer Grant Pattison said.

“The carry cost of debt is eating into disposable income,” Pattison said in a phone interview from Johannesburg today. “We expect to see customers paying back debt, rather than extending further debt” in 2013.

Massmart is among several South African retailers to say that rising credit payments toward the end of last year may lead to a prolonged slump in consumer spending. Truworths International Ltd. (TRU), South Africa’s biggest clothing retailer by market value, said unsecured lending has led to higher debt levels, while Shoprite Holdings Ltd. (SHP) said fuel-price increases and labor unrest will curb spending in the first half of 2013.

Massmart’s profit fell 23 percent to 691.8 million rand ($78.2 million) in the six months through Dec. 23 because of weaker consumer confidence and the costs of selling control to Wal-Mart, the Johannesburg-based company said in a statement.

Its foreign-exchange loss in the period was 76.7 million rand, down from 82.4 million rand profit a year earlier. The benefits of a stronger rand against Massmart’s African basket of currencies was “overshadowed” by the losses of the Malawian kwacha, the company said. The kwacha depreciated 49 percent against the rand last year, according to data compiled by Bloomberg.

Donkey Meat

Massmart is taking food safety “seriously” and will start to conduct testing on products it sells after a study this week found unlabeled donkey, goat and water buffalo in unspecified South African retailer products, Pattison said.

“Testing won’t be a significant cost,” he said. “It’s not really a food safety issue, but a trust issue.”

Sales climbed 15 percent to 36.1 billion rand in the half year and were 11 percent higher compared with a year earlier in the eight weeks to Feb. 17, Massmart said.

The stock was unchanged as 186.50 rand in Johannesburg. About 786,000 shares traded, almost three times the three-month daily average.

One-time charges in Massmart’s first half included 205 million rand related to the 2011 sale of a 51 percent stake to Bentonville, Arkansas-based Wal-Mart, Pattison said. Integration costs accounted for 65 million rand, with 140 million rand spent to top up the Supplier Development Fund, a requirement set by South Africa’s Competition Appeal Court as part of its approval of the deal.

New Sites

Wal-Mart integration-related costs will drop to about 50 million rand annually over the next 12 months, Pattison said. “Now that the Wal-Mart integration is behind us I will be spending time figuring out how to do food retail in Africa and to find a solution in e-commerce,” he said.

Profit at Game Africa, which excludes Massmart’s domestic South Africa market, is climbing well ahead of total sales, Pattison said. Several new sites have been approved in existing African markets and Massmart will enter Angola and Kenya through fiscal 2014.

The retailer declared a first-half dividend of 2.75 rand a share, up 9.1 percent from a year earlier.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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