Wal-Mart's Massmart Shares Climb as Profits Improve on Costs

Updated on
  • Second-half margin growth better than expected: analyst
  • General goods spend may rise with S. African economic growth

Wal-Mart Stores Inc.’s experience in controlling costs is helping South African grocery and general goods retailer Massmart Holdings Ltd. improve profit even as local shoppers have been hurt by high food inflation. The shares climbed the most in more than two months.

Trading profit rose 12 percent to 2.6 billion rand ($200 million) in the year through Dec. 25, the Johannesburg-based retailer said in a statement Thursday. The company, majority-owned by Bentonville, Arkansas-based Wal-Mart, raised the dividend by 16 percent to 2.99 rand a share.

“I’m pleased to see the recovery in profit was sustained in the second half and was better than I expected,” said Alec Abraham, a senior equity analyst at Johannesburg-based Sasfin Securities (Pty) Ltd. “Cost control was good and Wal-Mart’s know-how on cost management is no doubt helping.”

Massmart has been able to negotiate lower rentals for some stores, moved staff from receiving goods to the shop floors and cut travel costs, Chief Executive Officer Guy Hayward said by phone.

The shares rose 8.3 percent to 142.67 rand as of 11:42 a.m. in Johannesburg, the biggest intraday gain since Dec. 8. That brings the increase this year to 13 percent and gives Massmart a market value of 31 billion rand.

South African shoppers have been hurt by an inflation rate that climbed to a 10-month high of 6.8 percent in December, led by surging food costs following the worst drought since at least 1904. That’s been compounded by unemployment of 27 percent and economic growth in 2016 that was the slowest in seven years.

“If the economic environment improves even marginally with lower food inflation, a stronger rand -- potentially even lower interest rates towards the end of the year -- then consumer wallets will have a bit more money left at end of the month,” Hayward said. “Generally that money then goes back into discretionary spending like general merchandise and home improvements.”

Massmart plans to open 58 stores in two years to bring its total to 470. Eleven of these will be in African countries beyond South Africa, he said.

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