Wal-Mart's Massmart Profit Drops 26% on Currency Pressure

  • South African consumers under pressure from inflation, rates
  • Sales up 9.1% in first half for Wal-Mart's South African unit

Massmart Holdings Ltd., the South African food and goods wholesaler controlled by Wal-Mart Stores Inc., said first-half profit fell 26 percent as the company held down prices amid stiff competition and low consumer spending.

Profit excluding one-time items fell to 269.3 million rand ($20.6 million) from 364 million rand a year earlier, the Johannesburg-based company said in a statement on Thursday. That compared with a 26 percent decline a year earlier. Sales rose 9.1 percent to 39 billion rand.

South African unemployment of 25 percent, power cuts and rising fuel prices are putting pressure on shoppers to cut down on major purchases. Consumer confidence dropped to a 14-year low in the second quarter of this year. Massmart faces tough competition throughout its business and expects the difficult trading environment to continue, it said.

“All participants -- suppliers, service providers, retailers and wholesalers -- are competing keenly for profitability and market share, causing heightened margin pressure across the retail value chain,” Massmart said.

Further Pressure

The company expects further pressure on its South African business from food inflation, interest-rate rises and the weaker rand, it said. While sales of large appliances, hi-tech, multimedia and home improvement have remained steady, they may be impacted should upper-income customers’ confidence levels fall further, Massmart said.

“While we remain confident and resolute about delivering our strategic priorities, we are concerned that for the next 12 - 18 months the South African and most sub-Saharan consumer economies are unlikely to be supportive.”

Massmart shares fell as much as 6.1 percent in early trade in Johannesburg, and recovered to be 3.7 percent higher at 120 rand as of 9:58 a.m. The stock has decreased 16 percent this year, including an 8.5 percent fall after a trading update on Aug. 19. It’s the biggest decliner on the FTSE/JSE Africa General Retailers Index.

Foreign Exchange

The company made a net foreign-exchange translation loss of 106.7 million rand, “mostly as a result of the weakening of the average basket of African currencies against the rand,” it said. The weakening of the local currency against the U.S. dollar exacerbated the loss.

Expansion into other sub-Saharan African countries remains a priority and Massmart plans to open eight new stores in the region in the next two years, the company said. It’s also expanding e-commerce offerings and seeking to grow its food retail business.

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