Wal-Mart-controlled retailer Massmart — the owner of Makro, Game, Builders Warehouse and Cambridge Foods — took a hit on the JSE after releasing a weaker than anticipated trading update.
The trading update starkly contrasted supermarket giant Shoprite’s sturdy set of numbers released a day earlier. Shoprite’s year to end-June numbers showed that its all-important trading margin was largely intact and its lucrative African expansion was steaming ahead.
Massmart warned that headline earnings would plunge by between 22 percent and 30 percent. This would mean headline earnings of between R256m (118c per share) and R282m (130c per share) compared with the R364m (168c per share) posted in the half year to June 2014.
Evan Walker, of 36One Asset Management, said that foreign exchange effects and capital financing costs had adversely affected the earnings.
Massmart said if foreign exchange movements were stripped out then headline earnings would have fallen 9 percent to 156c per share or grown marginally by 0.9 percent to 172c per share.
“They revalue the earnings and assets of their stores across Africa, whose currencies are unstable in rands, which in itself is weak,” Walker said.
He said that Massmart had high capital costs, which hampered the bottom line.
“They are spending a lot of money on distribution centres.”
In May, Massmart had indicated growth in total sales of 9.5 percent for the first 20 weeks of the 2015 financial year, which was attributed to the group’s market share gains.
“Compared to the turnover growth reported weeks ago, the results are disappointing and one cannot really make out much from the limited information about bottom line numbers,” contended independent analyst and retail market expert Syd Vianello.
