Wal-Mart’s South Africa Unit Profit Rises as Food Sales Grow

  • Massmart sees tough second half, potential for better 2017
  • Retailer plans to open five new stores outside South Africa

Massmart Holdings Ltd., the South African retailer controlled by Wal-Mart Stores Inc., said first-half profit rose 19 percent as increased food and liquor sales offset slower growth in its general merchandise and home-improvement businesses.

Earnings excluding one-time items rose to 321 million rand ($23 million) from 269 million rand a year earlier, the Johannesburg-based company said in a statement on Thursday. Sales increased 8.7 percent to 42 billion rand and the company reduced the half-year dividend by 49 percent to 74.1 South African cents.

Slower economic growth and the effect of the weaker rand on the price of imports dampened consumer spending on durable goods, the company said. In contrast, food and liquor sales rose by 13 percent as the company increased its market share, Chief Executive Officer Guy Hayward told reporters on a conference call.

The divergence in performance reflects a “defensive economic environment where food does better than non food,” he said. “Our drive into food of a few years ago is paying for itself.”

‘Quietly Confident’

South African retailers have wrestled this year with challenges including drought-related food-price inflation, weak domestic confidence and rising interest rates. While consumer spending is likely to remain constrained and food prices will probably rise further in the second half of the year, conditions may improve in 2017, Hayward said.

“We are quietly confident about next year,” he said in a presentation in Johannesburg. “But the second half of this year we think will be exceptionally tough.”

The shares erased declines to trade 1 percent higher at 135.28 rand by 11:51 a.m. in Johannesburg, extending the year’s gain to 35 percent. Massmart is the best performer on the FTSE/JSE Africa General Retailers Index in 2016.

Wal-Mart, based in Bentonville, Arkansas and the world’s largest retailer, bought a controlling stake in Massmart in 2011 to take advantage of African growth.

Massmart’s stores in the rest of Africa increased sales by 23 percent, or 17 percent on a constant local-currency basis, the retailer said. The company expects to open five new stores outside of South Africa in the next two years, Hayward said.

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