Massmart delivers exceptional cost control in difficult durable product sales environment
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Massmart Holdings today released full-year results for the 2017 financial year. The 53 week numbers indicate pleasing sales growth, with total sales increasing 2.7% to R93.7 billion, however for ease of comparison, figures quoted in this announcement are for the current (2017) and prior (2016) 52-week periods.
Total sales for the 52-week period grew 1% to R92.1 billion, while
comparable store sales declined 0.8%. Product inflation was 2.0%. Headline earnings increased by 1.6% to R1.3 billion. Commenting on the results, Massmart CEO Guy Hayward said: “Very weak consumer confidence resulted in lower demand for durable goods, significant deflation in most major commodities impacted the wholesale business and we were negatively affected by generally weaker African economies and currencies. While these headline figures are indicative of the exceedingly difficult consumer environment that persisted in the period, they mask a much-improved performance in the second half of 2017. In this second half, three of the four Divisions recorded higher comparable sales growths than the second half of 2016 (where year-to-date product inflation
fell from 3.2% (June) to 2.0% (December) over the same period. And adjusting for product inflation shows that all Divisions reported higher real comparable sales in the second half of 2017.”
Against this external backdrop, management continued its rigorous focus on controllable factors. Excellent operational management resulted, once again, in superb expense control delivering total expense growth of 1.2% for the 52-week period while comparable expenses were 1.3% lower than 2016.
While the constrained consumer environment had a significant impact on the durable good sales (General Merchandise and Home Improvement categories), we are pleased that we continued to increase market share in durable departments including major appliances, audio-visual, information technology and gaming. This market share growth ensures Massmart is well positioned for an upturn in the consumer environment. Growth in Food & Liquor sales was also pleasing with many food and grocery categories growing ahead of the market, including; convenience instant meals, cereals, snacks and carbonated drinks.
Total sales from our South African stores for the 52-week period grew by 1.5%, while comparable sales declined by 0.2%. Total sales from our ex-SA stores for the 52-week period grew by 3.5% with comparable store sales growth of 0.8% (both measured in constant currencies). Our stores in Africa deliver the highest productivity on the continent – at R181million, while our average sales per ex-SA store is more than four-times higher than that of our competitors. We continue investing in our ex-South African business where we will increase space by 35% over the next three years.
Massmart recorded another bumper Black Friday with over R1bn in sales and improved margin management. A useful portion of this success was enabled by our continued strategy to grow our omnichannel offering, resulting in the Group’s aggregate online sales growing by 47% for 2017. This was achieved through our four e-commerce points of presence; Makro, Game, Dion-Wired and Builders Warehouse which are all currently using or migrating to the SAP Hybris platform.
In November 2017 Game launched its online shopping platform, using SAP Hybris, to an overwhelmingly positive response from customers while Makro’s Online sales grew by 37%, is being expanded continually. Customer response, particularly from high-basket value commercial customers, is very positive and online sales are accelerating.
The Massdiscounters division aggressively managed expenses and inventory, both of which were lower than the prior period and now position the business to benefit strongly from any positive sales momentum. Despite these efforts, the sales pressure was such that for the 52-weeks Massdiscounters’ trading profit before interest and tax decreased by 4.4% to R373.5 million. We remain focused on our Fresh roll-out, with 72 Game stores in South Africa and 17 in other African countries now offering this category, resulting in Food & Liquor sales participation of 23%. In addition, the new GK-POS point-of-sale roll-out was completed successfully across all Game and DionWired stores in Africa with the more significant SAP ERP system implementationon scheduled for early 2019.
Masswarehouse benefitted from the division’s defensive product mix with a 5.9% total sales growth in Food & Liquor, while general merchandise sales growth, which was impacted by deflation and lower discretionary spending, grew by 0.1%. This contributed to a 4% increase in total sales to R27.3 billion while comparable sales grew by 2.4%. We opened our 21st Makro store in Fourways in the period which has had a great response from our customers.
Massbuild delivered the best performance in the South African DIY and Home Improvement sector. It grew total sales
for the year by 2.4%, to R13 billion with comparable sales increasing by 1.6% and product inflation of 3.7%, which is lower than the 4.7% reported at June. Good expense management saw expense growth of only 2.6%. Massbuild was able to reduce its inventory level by eight days compared to the same period last year.
The Masscash division was exposed to severe commodity deflation, with monthly product inflation falling from 9.8% in December 2016 to 3.9% in December 2017. As a result, total sales of R31.9 billion increased by 0.4%, while comparable sales decreased by 2.3%. Commodities represent 16% of our Wholesale sales and, excluding this category, the remaining business grew sales by 1.5%. Cambridge and Rhino performed well in this difficult consumer environment, growing total sales at 5.8%. In September 2017, the retail and wholesale executive teams were combined into a single smaller executive team under the leadership of Kevin Vyvyan-Day, and the new combined executive is balanced and stronger.
Guy Hayward concluded, “The 2017 consumer environment presented a number of challenges for retailers. However, we are excited about the political changes we have seen since the ANC conference in December and we look forward to an improvement in many of the economic factors that have created headwinds, particularly for durable goods retailers. The work we have done on enhancing our operational efficiencies, reducing the cost of execution and refining our product mix means we are well positioned to take advantage of a cyclical upturn. Nonetheless, the structural, policy and public sector impediments remain long-term challenges through which our Food & Liquor offerings will provide a defensive positioning. This is an important moment for South Africa in terms of reinvigorating our own social, economic and political progress and we are keen to contribute to this positive passage of growth and renewal”.
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