Wal-Mart’s Massmart Cuts Dividend Amid Weaker Retail Outlookby
Pressure from higher South African inflation and weaker rand
Growth outside home market robust as Africans build more shops
Massmart Holdings Ltd., the South African food and general goods retailer controlled by Wal-Mart Stores Inc., cut its full-year dividend by 39 percent and said the outlook for consumers is weakening amid rising interest rates and inflation.
The retailer cut the dividend to 2.58 rand a share from 4.21 rand a share to invest in African property expansion and to be more conservative “in the context of the economic environment,” the Johannesburg-based company said in a statement on Thursday. Operating profit rose 14 percent to 2.3 billion rand ($147 million) in the year through December.
“The outlook has weakened considerably and we anticipate further negative pressures, including poor economic growth, higher inflation from the weaker rand, and higher interest rates,” Chief Executive Officer Guy Hayward said in the statement. “As with most local retailers, Massmart’s sales growth slowed in the latter period to December 2015.”
The stock declined 5.6 percent in early trade and was little changed at 99.01 rand as of 9:29 a.m. in Johannesburg. The shares have fallen 1 percent this year, valuing the company at 21 billion rand.
South African retailers and consumers are under pressure as the country’s worst drought in more than a century pushes prices higher, with December food inflation climbing to 5.8 percent. Meanwhile, a weakening rand prompted the central bank to raise interest rates by half a percentage point last month, increasing repayment costs for those with loans or mortgages.
Massmart sales climbed 8.4 percent to 84.7 billion rand in the 52 weeks ended Dec. 27. Sales for the subsequent eight weeks through Feb. 21 climbed 8.9 percent. Outside of its home market, sales in Africa climbed 14 percent, boosted by a 50 percent gain in its home improvement unit, that continues to “exceed expectations.”
The Game department-store chain, which has been battling price competition and pressures on profit margin, showed an initial recovery. Trading profit at Game South Africa, which sells goods ranging from washing machines to food, rose 30 percent.
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.