Tag: Massmart

South Africa’s general retailers index posted its biggest daily loss in nearly two weeks on Monday, capping gains on the bourse after ratings downgrades last week knocked the rand currency, raising the prospect of inflation curbing consumption.

The rand extended its recent losses as the credit downgrades to “junk” by two ratings firms last week following the sudden firing of the finance minister kept investors jittery.

The general retailers index shed 2.77% on Monday, bringing its decline to around 12% since March 27 when President Jacob Zuma recalled finance minister Pravin Gordhan from an overseas investors roadshow, before firing him in a cabinet reshuffle.

Massmart, majority-owned by Wal-Mart, lead the way, falling 4.85%.

“It looks like people are starting to realise that these downgrades will cause the economy to slow down, that’s generally a negative for retailers,” said Cratos Capital equities trader Greg Davies.

Overall, the market closed higher. Advancers included Anglo American, which closed 1.6% higher after announcing it would sell its Eskom-linked thermal coal operations in South Africa for $166 million, marking an important step in strategic overhaul to sharpen its focus.

The broader All-Share index increased 0.54% to 53,139.86 points, while the benchmark Top-40 index added 0.73% to 46,422.49 points.

On the foreign exchange market, at 23:50 the rand traded at 13.9501 per dollar, 1.20% weaker from its New York close on Friday.

In fixed income, the yield for the benchmark government bond due in 2026 climbed 7.5 basis points to 9.005%.

By Olwethu Boso for www.moneyweb.co.za

Game vital to Massmart’s revival

Massmart could finally be starting to deliver after nearly a decade of less-than-inspiring results.

But the revival of the R91-billion annual sales Walmart-controlled retailer’s fortunes is far from being a slam dunk.

Massmart certainly pleased the market in its annual results announcement of a 15.8% rise in headline EPS (HEPS). This was greeted by a 16% rise in its share price.

Massmart’s pricey 25 p:e indicates that more of the same is expected. A big swing factor will be its ability to continue driving a recovery in its Massdiscounters division, which houses Game, one of the group’s flagship brands.

“Game is key to the Massmart investment case,” says Warren Jervis, manager of the Old Mutual Small & Mid Cap fund.

The signs are positive for the 165-store discount division. It came to the party in 2016, lifting profit before interest and tax (PBIT) by R129m (54.8%) to R364m.

It accounted for just under half the group’s total R264m rise in PBIT to R2.61bn.

The division’s 5.3% rise in sales to R20.5bn was nothing to rave about. Doing the heavy lifting was a rise in the PBIT operating margin from 1.2% to 1.8%.

But there is still a long way to go if Game is to return to its former glory when, at its peak in 2011, it delivered PBIT of R744m and a 5.6% operating margin.

Then the wheels started coming off. Key reasons for this included ageing stores and a failure to keep pace with a rapidly changing consumer electronics landscape. At its worst in 2014, the division’s PBIT stood at R181m.

Jervis believes Game’s recovery still has long legs. “There is no reason it cannot get its margin up to at least 3%,” he says.

It would make a big difference. On a 3% margin, Game’s PBIT contribution in 2016 would have been R615m.

A key factor in upping margins will be the rollout of Game’s SAP point of sale and enterprise resource planning systems.

“It will provide visibility of profit per product line,” says Sasfin Securities analyst Alec Abraham. “It will enable Game to fine-tune its product mix.”

Game’s turnaround was engineered by Massmart veteran Robin Wright, who stepped down as
divisional CEO in August 2016.

Tasked with the next recovery phase is Albert Voogd, who joined Massmart from Ahold, the Netherlands’ largest food retailer.

The selection of Voogd ties in well with Massmart’s big ambitions in food retail. There is already a notable swing in Game’s product mix to food and fresh produce which, together with a recently added liquor offering, accounted for 23% of Game’s sales in 2016.

This was up from 21.8% at the June interim stage.

Abraham agrees that Massmart can continue driving food retail sales at a well-above-market pace. In its favour, he notes, is a small market share of 2%-3% across its Game, Makro, Cambridge and Rhino brands.

But he has concerns about the general state of SA’s beleaguered consumer market.

“It does not support Massmart’s [big-volume, low-margin] business model.”

The signs of strain are already there, not least in the group’s largest division, Masswarehouse, which houses 20 Makro megastores.

While Makro did exceptionally well in 2016 to lift sales by 11%, it came at the cost of big margin pressure; PBIT of R1.25bn came in just 4.4% higher than 2015.

Taking even more strain was the Massbuild division, housing 102 stores under brands including Builders Warehouse and Builders Express. Sales for the year came in 5.6% up at R12.7bn, while PBIT — hit by margin squeeze — was up only 2.7% at R712.6m. More concerning is the fact that second-half PBIT was up a mere 0.7% year-on-year.

For Massmart, 2017 did not get off to a good start. In the eight weeks to February 19 the group reports total sales up a mere 0.6% and comparable (same store) sales down 1.5%.

It represents a significant slowdown against the previous three years. On a comparable sales basis, sales in the first eight weeks of 2016, 2015 and 2014 were up 6.9%, 7.9% and 7.7%, respectively.

Against the likes of Woolworths, trading on a 16 p:e, and even Shoprite on a 20 p:e, Massmart’s 25 p:e is looking decidedly stretched.

By Stafford Thomas for www.businesslive.co.za

Massmart holds steady in turbulent times

A sales update from Massmart has revealed so-so results, but in these trying times that’s just a couple of notches down from a howling success.

Sales were up 7,7% to R91,3-billion in the 52 weeks to 25 December, ahead of product inflation of 6,7%, but down from market expectations, and from last year’s performance (growth of 8,4% against product inflation of 3%).

Masswarehouse – that’s Makro to the rest of us – grew fastest, at 11%, while Masscash (Cambridge, Jumbo and so on) grew at 7,5%, although this was beaten down by internal inflation of 9,3%.

Massdiscounters (Game, DionWired) came in at 5,3%, while Massbuild somewhat disappointingly trundled home at 5,6%.

While there was an uptick in sales at home, they declined elsewhere, vindicating the decision to take it easy in Africa.

Source: Trade Tatler

Massmart growth stutters

Massmart has posted figures for the first 44 weeks of the year. While food and liquor sales have held their own, GM has lagged, and this has made for an overall sales growth across the group of 5,3% excluding new stores, against internal inflation of 6.4%.

Here’s the breakdown of the divisions, excluding new stores:
* Masswarehouse (Makro and Fruitspot) – 7.5%
* Masscash (Jumbo, Shield, CBW, Cambridge etc.) – 8.5% after store closings
Massbuild (Builders Warehouse, Builders Express etc.) – 1.1%
Massdiscounters (Games, DionWired ) – 0.5%

Even a business as diversified as Massmart has been unable to escape the worst effects of this thing which must not be called a recession.

Source: Trade Tatler

Massmart’s shares fall

The share price of Wallmart’s South African subsidiary Massmart fell 4.4% to R111 on Tuesday morning after it reported overall sales growth excluding new stores failed to keep pace with inflation.

Massmart reported sales for the 44 weeks to October 30 excluding new stores was 5.3%, lagging behind product inflation of 6.4%.

Including new stores, sales grew 7.6% to R73.2bn from matching 44 weeks in 2015.

“Sales growth has declined, reflective of the tough trading conditions in SA and, more recently, in most African countries where we have stores,” the company said in its sales update on Tuesday.

“Although slowing marginally food and liquor sales continued to perform well and Massbuild is showing signs of a sales recovery. General merchandise sales remain compromised by low consumer confidence, drought-affected food inflation and higher-priced imported products.”

Massmart splits itself into four divisions.

Fastest sales growth of 10.7% was reported by Masswarehouse which houses the Makro and Fruitspot chains. Excluding new stores, sales growth was 7.5%.

Next was Masscash whose brands include Jumbo, Shield, CBW, Rhino Cash & Carry, Tridant, Saverite and Cambridge Food. It increased by 7.9%. It appears to have closed numerous outlets since same-store sales growth was 8.5%.

Massbuild — which houses Builders Warehouse, Builders Express, Builders Superstore and Builders Trade Depot — grew sales 5.7%. Excluding new stores, sales growth was a more muted 1.1%.

Game and DionWired division Massdiscounters increased sales by 4.6%, but only by 0.5% when excluding new stores.

By Robert Laing for www.businesslive.co.za

As speculation gains traction that Walmart is selling off its anchor shareholding in its African partner Massmart, industry pundits are concerned that finding an investor with enough funds to take over may prove difficult.

At Walmart’s AGM in Fayetteville, Arkansas, this week, shareholders in the world’s largest retailer may stew over the health of the US economy, the technology threats posed by online giants such as Amazon, and its African investment. – which, after five years, is struggling to maintain momentum.

When Walmart bought a majority shareholding in Massmart, the owner of Makro and Game was trading at R148, costing the US retailer $2.5-billion.

Now the stock is trading about 23% lower since the deal was approved by anti-trust authorities in March 2012.

In January this year, the share was trading as low as R83.20 – a 48% decline in value since the takeover.

The group had to scale back on its growth strategy having opened 11 new stores in Africa from the 27 they had in 2012.

Earlier this year, Barclays plc announced it will sell off its stake in its African business, showing the waning investment sentiment for the continent.

Meanwhile, Walmart’s share price has increased more than 17% despite lukewarm growth in its home market.

Massmart’s performance in Africa has been further dampened by the struggling South African economy.

Sébastien Delsemme, a consultant analyst for Kantar Retail, says: “We have heard from various sources Walmart have identified Africa as part of the divestment in their current portfolio – among others.
“The problem [will be] finding an investor with enough funds to take over.”

Delsemme described the sell-off speculation as “just rumours”. However, the speculation has foundation in precedent.

In 1999, Walmart bought into South Korea, to exit seven years later. Similarly, it pulled out of Germany after eight years.

Poonam Goyal, senior retail analyst at Bloomberg Intelligence, says Walmart had also been struggling in the UK because “they don’t have the price perception of being low-priced – some of the other retailers have taken that perception away from them”.

She adds: “It’s not certain that Walmart will even chase the demand because it’s an unprofitable way to chase it.
“So while they like to be lower-priced, they don’t like to be giving up their margin entirely, which is what some of the grocers are doing in the UK.”

Walmart’s overriding strategy is “to not just be a competitor, but to own the market. They want to be the main player.”

But in the local retail space, Walmart and its partner Massmart have not been able to steal market share from competitors such as Shoprite and Spar.

Although Massmart may not meet Walmart’s expectation in terms of returns, “Walmart does tend to be long-term oriented with its retail investments”, says Chuck Cerankosky, MD of Ohio-based Northcoast R esearch.

“It spent a lot of time repositioning Asda years ago and it might be going through a bit of that again in the UK. So maybe there is work to be done at Massmart and they just haven’t made it a top priority because there obviously has been a lot of effort made to improve the performance here in the US.”

According to Walmart’s 2016 annual report, the company has 6 299 stores operating outside the US, including 346 in Japan. It has 408 stores in 13 African countries.

However, Joseph Feldman, a senior MD at Telsey Advisory Group in New York, says that although he hadn’t heard anything specific from Walmart about a possible sell-off, “Walmart is more of a harvest story as opposed to a growth story”.
He adds: “It’s not a growth story the way a 10-store retailer has potential to go to 500 stores. Obviously Walmart is a mature business that has been able to generate positive traffic.
“Walmart wants to stay the course and emerging markets makes sense given the nature of what they sell and how they sell it. They are trying to help people live better and save money with people living better.”
But entering a market through a partnership “almost makes it easier to exit”, Goyal points out.

“It’s really about the return – whether they can get the returns on investment that they expected from that market, and whether the partnership is working well for them and there’s room for them to at some point move up the chain and become number one.”

Walmart was not available for comment at the time of publication.

By Palesa Vuyolwethu Tshandu
This article was first published in Sunday Times: Business on 05/06/2016

Walmart may sell stake in Massmart

Massmart may have escaped a sell-off this year by a whisker, but pressure is mounting and Walmart may in future alter its view that the South African retailer is a strategic asset worth holding onto.

A top analyst has warned that US retail giant Walmart could lose its patience and sell its 51% controlling stake in Africa’s second largest retailer, Massmart, if the Johannesburg-based general merchandiser fails to turn around its lukewarm performance by 2018.

Shamil Ismail, an analyst at Primaresearch, has suggested that Walmart, which paid $2.5 billion to acquire Massmart in 2011, has a history of pulling the plug on its offshore investments that misfire and that Massmart was in danger of being dumped by the US retailer if it does not turn the corner in the next two years.

Ismail’s ominous prediction is not baseless. In January this year Walmart announced the closure of 269 stores, of which 115 were in Latin America.

This massive scale-back sent shockwaves through the markets and triggered speculation that Africa could be the next target of Walmart’s pull-back – not an unlikely scenario in light of the recent announcement by British lender Barclays Plc that it was intending to sell down its stake in its African business significantly.

“The closure of these stores follows a review that took into account a number of factors, including financial performance and strategic alignment with long-term plans,” wrote Ismail in a research note.

Ismail believes Massmart, which currently operates 38 stores in 13 countries outside South Africa, would not have passed the financial performance muster as the retailer’s earnings have largely been flat over the past nine years.

“We have noted Walmart has failed in and exited two countries – South Korea (1999-2006) and Germany (1998-2006) – and the tenure of these holdings was seven to eight years. With the 2011 entry into South Africa, applying the same time frame would suggest that Massmart may have until probably 2018 to turn around its performance, in our view,” he wrote.

Walmart failed to crack the Russian market after spending eight years trying to find a suitable local acquisition target. It also has not managed to get into the Indian market. In Japan, it is scaling back by closing 30 of its 373 outlets in that country.

“We have noted Walmart has failed in and exited two countries – South Korea (1999-2006) and Germany (1998-2006) – and the tenure of these holdings was seven to eight years. With the 2011 entry into South Africa, applying the same time frame would suggest that Massmart may have until probably 2018 to turn around its performance, in our view”
Massmart may have escaped a sell-off this year by a whisker, but pressure is mounting and Walmart may in future alter its view that the South African retailer is a strategic asset worth holding onto for a very long time.

“In light of recent developments, with the substantial weakening of the rand and the announcement that Barclays Plc will sell off its stake in its African business, we believe there is a heightened risk that Massmart’s anchor shareholder Walmart may consider a similar move,” notes Ismail.

A fall in Massmart’s share price and a sharp depreciation in the value of the rand against the US dollar have conspired to eat a big chunk of the value of Walmart’s stake in Massmart. The US retailer acquired the 51% stake in Massmart in October 2011 at a share price of R148 and at an exchange rate of R6.76 to the US dollar, costing the US company $2.5 billion to consummate the transaction.

According to Ismail, Walmart’s investment in Massmart has faltered. On January 21 this year Walmart’s stake in Massmart hits its lowest value (peak diminution) in US dollar terms when it was reduced to $545 million, a whopping 78.2% reduction from the original price it paid to buy into the South African retailer. This means the “peak diminution” or the stake’s rock-bottom value was reached at a share price of R83.20 and rand/dollar exchange rate of R16.55.

Since January 21 both Massmart’s share price and the rand have recovered, helping to boost the value of Walmart’s shareholding in Massmart.

At the time of going to press, Massmart’s share was trading at R124.50 while the rand was quoted at R14.42 against the US dollar, implying the two key ingredients that drive its valuation had lifted the stake’s value to $964 million. Still, the value of the stake is 60% lower than Walmart’s initial investment of $2.5 billion.

As Walmart was concluding its acquisition of Massmart in 2011, established South African retailers were lying in wait to give the foreign invader of their home turf a proper baptism of fire.

From the word go, the likes of Shoprite and Pick n Pay – both powerful merchants of fresh meat, fruit and vegetables – played rough with Walmart after the American giant signalled its intention to get into fresh food retailing through Massmart-owned Game stores, a specialist general merchandiser known for selling household goods ranging from soap to electronics.

“In South Africa Massmart is known to achieve the highest retail trading densities (sales per square metre), indicating we generate higher sales out of fewer stores. For example, the ratio of Game stores to specialist grocery competitors is about one to 33, which is consistent with the ratio of stores outside of SA”
They have prevented Game from adding fresh food in shopping malls, where they have a presence, citing clauses in leases they signed with mall owners that give them exclusive rights to sell food.

Pick n Pay and Shoprite have used the courts to have the exclusivity leases enforced.

Massmart has sought the help of competition authorities to ban the “anti-competitive” exclusivity leases. Walmart never saw this counter punch coming. Game is selling fresh produce in about half of its 110 stores.

The feud over food, plus slow growth in the South African economy, has pegged back Massmart’s performance. The retailer’s first-half earnings to December 2015 dropped by 26% to R364 million while main rival Shoprite lifted its half-year earnings 12% to R2.2 billion.

Brian Leroni, Massmart corporate affairs executive, said the general merchandiser is planning to open five stores outside South Africa, where Massmart stores are known to generate three times the turnover of a South African store.

“In South Africa Massmart is known to achieve the highest retail trading densities (sales per square metre), indicating we generate higher sales out of fewer stores. For example, the ratio of Game stores to specialist grocery competitors is about one to 33, which is consistent with the ratio of stores outside of SA,” said Leroni.

Shoprite wants to increase the number of its supermarkets in oil-rich countries like Angola and Nigeria, where it has noted the sharp drop in oil prices has not led to a slump in consumer spending. Shoprite plans to open 168 stores between now and June 2017, of which 58 will be outside South Africa.

By Andile Ntingi for www.getbiz.co.za

Makro aims for sustainability

Since the Walmart deal, Massmart has struggled a bit, as Africa, with currencies shaky and commodities down, has failed to deliver immediately on the promise, and as ill economic winds buffet the local consumer.

Their 2015 results were not all that. But they’ve stuck to their guns in key areas, and this should make for steady improvement in the medium to long term.

One of these areas is sustainability, as embodied by the new Makro, the first to make use of renewable energy, in Carnival Mall, Jozi, where solar panels will produce 1-million kWhs of electricity every year, only a little of which will be consumed by the LED bulbs which make up 100% of the store floor lighting.

Daylight will be harvested, and refrigeration will be provided by high-performance CO2 plants.

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