Wal-Mart’s Massmart Sales Growth Slows as Spending Declines

Massmart Holdings Ltd., the South African food and goods wholesaler owned by Wal-Mart Stores Inc., said revenue growth continued to slow in August after a downturn in consumer spending hurt first-half earnings.

Same-store sales growth slowed to less than 5 percent in the eight weeks through Aug. 18, Chief Executive Officer Grant Pattison said on a conference call today. That compared with 5.5 percent in the half year through June 23 and 7.3 percent in the six-month period before that. First-half earnings excluding one-time items and foreign-exchange gains fell 9.4 percent to 392 million rand ($38 million), the Johannesburg-based company said in a statement.

“Disposable income levels are fragile,” Pattison said. “Those with lower incomes are particularly under pressure. About 75 percent of our operating profit reflects the economy, about 25 percent reflects our own goals.”

Massmart, which owns the cash and carry chain Makro and do-it-yourself specialist Builders Warehouse, said sales would continue to be under pressure for the remainder of the year and most of management’s focus will be on maintaining market share and reducing costs. The company, in which Bentonville, Arkansas-based Wal-Mart has a controlling stake, maintained the half-year dividend at 1.46 rand a share.

Stock Declines

Massmart fell 4.1 percent to 148.49 rand at the close in Johannesburg to the lowest price since Oct. 17, 2011. The stock, which has dropped 22 percent in 2013, has been trading at close to two-year lows since the company said on Aug. 13 that first-half earnings per share had declined.

South African retail sales rose at the slowest pace in eight months in June as flagging economic growth and rising joblessness curbed consumer spending. The unemployment rate climbed to 25.6 percent in the second quarter from 25.2 percent in the previous three months as the labor force expanded and the retail, finance and construction industries cut jobs.

Massmart will focus on introducing new lines in its fresh-food, clothing and e-commerce units, the company said. This will include the introduction of George, a clothing brand owned by Wal-Mart’s Asda Group Ltd. subsidiary in the U.K., at Game and Makro stores starting in November.

Massmart has also introduced Wal-Mart’s Ol’ Roy dog food, which is manufactured in South Africa using the same formula as the U.S. company. Massmart plans to bring Wal-Mart’s online offering to South Africa “in a few years,” Pattison said.

Competition Toughens

The South African retailer plans to shift some focus to elsewhere on its home continent as competition toughens in its domestic food-retail market. Sales in Africa, excluding South Africa, which account for 7.6 percent of revenue, increased by 11 percent in rand terms, the company said. That led to a foreign-exchange gain as the rand weakened against the U.S. dollar and other African currencies, according to Pattison.

Massmart, which plans to open 80 to 90 stores in the next three years, may close as many as 15 underperforming outlets in South Africa as it looks to boost growth in the rest of the continent, Pattison said. The company has “clear visibility” to open 10 to 15 stores in Africa over the next three years, including outlets in Kenya and Angola, he said.

Expansion in West and East Africa will also include a new format of stand-alone food stores. These will be accumulated by acquisition and company-built sites, Pattison said.

“We looked at Wal-Mart format options and will start trialling some by year-end or early next year,” he said.

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