Massmart’s share price had its biggest fall in six weeks on Monday when it said CEO Guy Hayward was calling it quits after less than five years of trying to turn around the fortunes of the Walmart-owned retailer.
Hayward’s resignation eight years before retirement age comes at a time when the consumer goods group is struggling to live up to the expectations of the 2011 merger with US retail giant Walmart amid a slump in consumer confidence due to a sluggish SA economy.
Massmart, which in March was forced to cut dividends to shareholders 40% after a 32% drop in earnings in the year to December, will also lose CFO Johannes van Lierop in August, after he told the company in February that he would not be extending his tenure for personal reasons.
The retailer’s share has lost about a third of its value since the beginning of June 2014, when Hayward officially took over as CEO, a dismal performance even in the context of a weak retail environment.
During that period, the general retailers index gained 8.27%, well short of the 17.85% increase in the JSE all share index. Massmart’s share price closed 3.3% lower at R91.14 on Monday. Even as the number of its stores increased to 436 at the end of 2018 from 288 before the Walmart deal, the group’s annual profits decreased to R868m in 2018 from R1.14bn
in 2014.
Other retailers have also been feeling the heat as consumers struggle with rising unemployment, tax increases and record fuel prices.
Shoprite, the country’s biggest retailer, reported a 4% drop in profit for the 2018 financial year at a group level, while clothing retailer Edcon had to be rescued by its creditors and landlords to keep its doors open.
"The South African economy has been underperforming massively over the past few years. Maybe he is part of the group that believes our issues are bigger than we really think and therefore do not see a future in South African retail," said Casparus Treurnicht, portfolio manager at Gryphon Asset Management. He said the SA environment was "extremely stressful" even if there was "good management depth in most of our retailers" as online players look set to continue taking market share.
While Hayward went as far as apologising to shareholders for its poor financial 2018 results, Sasfin senior equity analyst Alec Abraham said the performance was beyond its management’s control. "The group’s performance comes down to the current economic situation in SA. Massmart is a high-volume low-margin business, and the operating environment in the past decade has not been supportive of that business model. He is not responsible for the poor performance."
The group also said Hayward had presided over "exceedingly challenging market conditions", yet managed to introduce new revenue streams for the
group including value-added services whose offerings include money transfers, lotto sales, credit product sales and extended warranties.
Hayward, a former Goldman Sachs banker, has worked at Massmart for nearly 20 years.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.