The road to recovery for Massmart, the owner of Makro, Game and Builders, has become even harder, with the riots and looting that rocked the country in July set to push it to a loss of more than R2bn.
In a trading update that sent its shares tumbling to their lowest intraday level in almost a year on Friday, the company, owned by Walmart, the world’s biggest retailer after tech giant Amazon, said its losses for the year to December probably widened by about a third to between R2.14bn and R2.4bn. That had analysts speculating that it might need to sell more assets as it looks to end a three-year losing streak.
The intraday fall of 6.45% pushed it to its lowest level since March 2021. It trimmed that drop to close 2.99% weaker at R52, bringing its loss over the past five years to 61%. That values the company at R11.39bn. Walmart paid $2.5bn (R38bn based on the latest exchange rate) in 2011 for a 51% stake.
Hailed as one of the most significant investments into SA, the acquisition of Massmart with a dream of turning it into a continental powerhouse soured in the face of a decade-long stagnation in the local economy. In August 2019, it brought in Mitchell Slape, a more than 20-year veteran at Walmart, to drive a recovery plan that included selling underperforming assets and streamlining the business.
With that under way, the company was hit heavily as the Covid-19 outbreak reached SA, with Massmart among the biggest casualties of forced closures and periodic bans on the sale of alcohol. Then came the riots in July 2021, which led to lost sales from 43 damaged stores and supply chain disruptions during the unrest in Gauteng and KwaZulu-Natal. This was worsened by the effect of global supply shortages.
In its update on Friday, Massmart said its headline loss, which excludes certain one-off items, is expected to worsen by between 60% and 70% to as much as R1.57bn. It said profit was also affected by the timing of business interruption claims.
“This certainly is not what the market wanted to hear,” said Casparus Treurnicht, a portfolio manager at Gryphon Asset Managers. “We are now at the point where only good bottom line numbers will ease pressure on the share.”
The retailer, which is headquartered in KwaZulu-Natal, previously said the civil unrest caused R2.5bn in damage and estimated a net loss of R650m as a result of an insurance shortfall.
The latest setback had analysts speculating on which parts of the business may be disposed of after it sold its loss-making Cambridge grocery stores and closed Dion Wired stores, the loss-making electronics chain. It merged four businesses into two to cut costs and outsourced its administration and IT support functions.
The sale of Cambridge Foods to Shoprite is awaiting competition authority approval. Massmart also in the process of selling 15 Game stores. While Slape previously said there are reasons to be optimistic about Game, the group’s “patience is not unlimited”. The company said its headline loss from continuing operations, which excludes the Cambridge, Rhino and Massfresh businesses, is expected to deteriorate by between 13% and 23% from the prior period’s R831m loss.
“I guess management don’t need more evidence to discard the likes of Game,” said Makwe Masilela, from Makwe Fund Managers. Even Makro was an underperformer, Masilela said.
Update: February 20 2022
This article has been updated with additional information throughout.
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.