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Massmart reports robust growth in a tough environment

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Good margin management and astute expense control resulted in pleasing trading profit and headline earnings growth.

Key highlights
• Total Sales up by 7.7% (R91.3 billion)
• Strong profit recovery at Game (trading profit up 54.8%)
• Online sales double
• Operating Profit before interest up 15.5% (R2,483.4 million)
• Headline Earnings up 15.6% (R1,293.3 million)

Against the backdrop of very low discretionary consumer spending, Massmart today announced its full-year results for the 52 weeks to December 2016, reporting a total sales increase of 7.7%. Comparable sales for the period increased by 5.4%, with product inflation estimated at 6.7%. These results were underpinned by good margin management and excellent cost control, which resulted
in headline earnings increasing by 15.6% to R1.3 billion. The sales performances across Massmart’s major product categories reflect the economic pressures within the South African consumer environment. Total Food and Liquor sales grew at 11.7% for the year while General Merchandise, which continues to be impacted by very low discretionary consumer spending, grew by 1.5%. Despite the challenges, Massmart outperformed the market in terms of General Merchandise sales. In addition, Massmart ran a number of very successful promotions in the year, such as the Black
Friday promotion. On Black Friday, Game experienced its highest ever one day sales, and Makro broke all previous online records, generating the highest online sales in one day, contributing 6% to overall sales. The year also saw excellent sales from the Group’s retail Food offering, which contributed to the strong performance from Game. Commenting on the results, Massmart CEO, Guy Hayward said: “We have had a particular focus on operating profit in recent years, and I am pleased that operating profit continues to improve – this year saw an increase of 15.5%. This is noteworthy given the Group’s exposure to General Merchandise, which has been significantly impacted by low levels of discretionary consumer spending. These results also reflect our emphasis on enhancing business efficiencies, which we will continue in 2017 as we maintain our focus on leveraging of Group transport, logistics and supply chain. We’re excited by the growth of our online offering, which doubled its sales in 2016, and which will continue to grow in 2017 with the launch of Builders online”.

Operating expenses were well controlled, increasing by 7.7% over the prior year, and excellent expense control resulted in comparable expense growth of 5.4%. Sales from outside of South Africa represent 8.7% of total sales and grew by 11.2% in Rands and 13.4% in constant currencies. The severe drought in southern Africa, and weak and volatile African currencies, impacted the reported Rand sales. Eleven more stores will be opened outside South Africa in 2017 and 2018, representing African space growth of 26.2%.

Divisional performance In Massdiscounters, the two-year focus on Game’s merchandise execution as well as addressing in-store and supply chain costs, manifested in a strong trading margin and expense performance. This, together with good sales and an impressive profit performance from Dion Wired, resulted in a 54.8% increase in trading profit before interest and tax in the division. The roll-out of Fresh continues with 88 Game stores now offering this category. Food and Liquor sales participation has reached 23%, achieving comparable sales growth of 11%.

Makro continued to deliver a strong performance with total sales for the year increasing by 11.0%, boosted by total sales growth in Food and Liquor which were higher than the overall business. Lower General Merchandise sales were reflective of significantly constrained discretionary spending. Given the sales pressures, particularly in the countries outside of South Africa, the increase in Massbuild’s trading profit before interest and tax was 2.7%. In the year under review, a pilot online offering for Builders Warehouse contractor customers has progressed well. The online proposition is exceptional with rich data and broad functionality, and will be available by mid-2017.

Despite lower-income consumer demand and intense price pressure, Masscash increased total sales by 7.5% and comparable sales by 7.9%. Both Cambridge and Rhino performed well, growing comparable sales above 10%. Hayward concluded: “We are hopeful that several key economic drivers in South Africa will improve in 2017 – lower food price inflation, some Rand strength and possibly lower interest rates. This makes us cautiously optimistic for the upcoming period. However this optimism remains measured by the high levels of uncertainty and volatility that currently prevail. As a result we will continue to focus on factors within our control and our strategic priorities remain unchanged: we are beginning to see pleasing results from our continued focus on new retail formats, including the growth of our online offering and African footprint, as well as the rollout of new Retail Food and Builders outlets in SA. We will continue to implement efficiencies that ensure we are well positioned to take advantage of the turn in the business cycle.”


For Media Enquiries

Annaleigh Vallie
Group Communication Manager
avallie@massmart.co.za

Brunswick South Africa
Carol Roos
Georgina Armstrong
011 502 730

Massmart, Africa’s second largest retail group, comprises four divisions operating in 412 stores, across 13 sub-Saharan countries. Through our widely-recognised, differentiated, retail and
wholesale formats, we have leading shares in General Merchandise, Liquor, Home Improvement and basic wholesale Food markets. Our key foundation of high volume, low cost and operational
excellence are the enablers of our price leadership.

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