By Dineo Faku for IOL
Massmart shares surged 20.76 percent at the JSE yesterday to close at R54.10 as the market welcomed the proposed sale of its non-core Masscash, Cambridge Food and Rhino stores as well as the review of its footprint outside the Southern Africa Development Community (SADC) as it focuses on investment in core and high returning assets.
Chief executive Mitch Slape said the group would review its operations outside SADC in the second quarter.
Slape said the group had appointed Barclays to facilitate the disposal of the Cambridge Food, Rhino and Massfresh comprising The Fruitspot and a meat processing facility assets.
“We are going to be divesting our Masscash, Cambridge and Rhino business largely because these are not core assets to Massmart, and we see no clear pathway to market leadership with these businesses,” said Slape, adding that the SADC stores had a mixed performance and had added significantly to the complexity of the Massmart business.
“These decisions are indicative of a strategic shift to concentrate on areas of market leadership, areas we believe we have the strength against our competitors.”
Massmart unveiled plans to accelerate its e-commerce strategy leveraging the experience of parent company Walmart.
It announced a focus on the growth of its DIY category, primarily Builders Warehouse, its wholesale business, and the revitalisation of its general merchandise business.
However, due to Covid-19 pandemic restrictions mainly on liquor, sales during the 52 weeks ended
December 27, 2020, fell to R86.5 billion representing a decline of 7.7 percent, with a 7.5 percent fall in comparable store sales in line with expectations.
Investment Analyst at Sanlam Private Wealth, Renier de Bruyn, said grocery retailers had been hard hit by the liquor restrictions, which negatively impacted the results, while the increased spend on home improvement projects by retail customers was evident in the healthy rise of operating profit at Builders.
“Some underlying progress can be seen in the new management team’s turnaround plan announced at the start of 2020 in terms of improved inventory and margin management and restructured operations,” De Bruyn said.
“There also seems to be better support from their parent Walmart in a number of areas.”
Trading profit was up 5.5 percent at R1.172bn from R1.11bn in 2019. The group reported a net loss of R1.8bn from R1.3bn during the same period in 2019, while its headline loss narrowed to R900 million compared to a headline loss of R1.2bn during the same period in 2019.
Euromonitor consultant Christele Chokossa said despite the 5.5 percent increase in trading profit due to lower operating costs through lease renegotiation, recruitment freeze, and closure of DionWired stores, Massmart’s profit before interest and taxes declined by 119.5 percent, while net loss for the period increased by 35 percent.
“Massmart likely lost shares in food retailing due to lower demand from the hospitality industry, as well as the closure of some stores due to Covid-19. Besides, Game’s performance was poor when considering its overall industry performance,” Chokossa said.
The review of the stores outside SADC builds on the turn-around plan announced last year that has seen the revamping of Game stores, and resulted in the closure of 23 DionWired stores and underperforming Masscash stores. Last month Massmart also announced the decision to divest an additional 14 Cash & Carry stores following a more comprehensive strategic review.