Massmart has been a dismal performer for most of a decade in terms of fundamentals and its JSE share price performance.
It keeps on being streamlined, with significant divestments and disposals having taken place in recent years and yet it still keeps stumbling along making losses. A small- to mid-cap stock nowadays with a total listed value of just less than R7bn, the days when it was regarded as being potentially Africa’s largest retailer now seem terribly distant.
One cannot help but wonder when the powers that be at Walmart head office in Bentonville, US, will decide to pull the plug on this embarrassment.
Massmart’s recently released trading update for the 26 weeks to end-June was a shocker. Total group sales were R41.3bn, about in line with sales for the comparable period in 2021. Stripping out Cambridge, Rhino and Massfresh, which were sold to Shoprite last year, leaves a figure for continuing sales of R38.1bn, an increase over the comparable period in 2021 of 1.9%. Stripping out the impact of new store space, the sales growth number would have been 4.3%.
As was the case with all liquor retailers, liquor sales performed strongly from a low base as no liquor restrictions relating to the coronavirus pandemic were experienced in the six months to June 2022. Liquor sales grew 21.3%. Food sales also bounced back, rising 6.4%.
But general merchandise, the category for which Massmart is best known, went backwards, with sales declining 1.4%. General merchandise tends to be higher margin than food and associated categories, so there was a noticeable dampening effect on profitability.
The group experienced higher cost inflation than sales inflation, lower profit margins at Builders due to increased trade sales versus retail sales, increased finance costs and a one-off lease-exit settlement.
The net result is an expected headline loss per share range of 409.1c to 425.7c from continuing operations for the six-month period. That compares with a headline loss per share of 166c for the comparable six months in 2021.
The full results will be released on August 29.
Bleak background
The ambient SA economy is unconducive for an improvement in consumer spending generally. Interest rates have risen sharply in recent months and the forecast is for more of the same, at least for the rest of 2022 and perhaps into 2023.
Massmart will not get the favourable base effect on its liquor sales in the second half of the financial year, and food sales are likely to be negatively affected by significantly higher food prices for consumers. General merchandise volumes are unlikely to recover materially against such a bleak economic background.
It is difficult to make accurate comparisons with other JSE-listed retailers, as Massmart’s composition is unique, especially considering its high concentration of general merchandise. But the recent trading updates of other fast-moving consumer goods retailers such as Shoprite and Pick n Pay were materially better than Massmart’s. And none of these other retailers are making consistent losses.
Eventually, investor patience with certain companies wears out. Massmart has been through a variety of CEOs since 2007, starting with corporate entrepreneur Mark Lamberti, through his protégé Grant Pattison, former CFO Guy Hayward and the incumbent, the Walmart appointee Mitchell Slape. Massmart was always Lamberti’s baby. He nurtured it from its earliest stages and was instrumental in taking it to its greatest heights. I had the privilege of accompanying him to a variety of store visits in Joburg many years ago.
He is a dyed-in-the-wool retailer and understands exquisitely when something is working and when it is not. He acts quickly and decisively to correct things. Slape is a seasoned corporate operator, with many years of Walmart global experience under his belt. But he is not a retailer in the same way that Lamberti is. And that is why he demonstrably has not managed to turn Massmart around.
• Gilmour is an investment analyst.
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