Tag: Massmart

Will Walmart call it quits in SA?

According to a recent Business Day article, Massmart – who owns brands such as Game and Makro – is in trouble.

The company recorded a R550-million loss to June 2019, and investors have been told earnings will likely be less than 50% of what they were in 2018.

  • Walmart is the world’s largest bricks-and-mortar retailer. The company paid $2.3bn to buy 52% of Massmart in 2011
  • Walmart paid R148 a share, but today share prices stand at R44 – a 70% drop in value
  • Speculation is rife that Walmart may pull out of SA rather than buy the other 48% of Massmart
  • SA won’t be the first country Walmart has exited. It also gave up on Germany, Britain and South Korea, and is currently scaling back in Brazil
  • In 2010, Massmart generated cash of R2.6bn and paid dividends of R822.4m
  • By 2018, cash flow was at R2.8bn, and dividends marginally lower at R750m
  • Massbuild (primarily Builders’ Warehouse) would be an easy sell but it would be a struggle to find buyers for Massdiscounters (Game and DionWired) – stores that have been hard-hit by online competition
  • Other businesses in the stable are Masswarehouse (Makro and The Fruitspot) and Masscash, whose brands include Jumbo Cash & Carry and Cambridge Food
  • By 2020 it will be clear whether or not Walmart can extract value from its African conglomeration, or whether it breaks it into its pre-1990s components and sells them off.

Source: IOL

Retail group Massmart said on Monday chief executive officer Guy Hayward would step down before year-end.

“After almost 20 years in the business, the past five of which have been as chief executive officer, Guy Hayward has informed the board of his decision to step down from his role before the end of 2019,” it said in a statement.

The exact timing of Hayward’s exit was still to be confirmed as he and the board embarked on the process of ensuring a seamless transition, Massmart said. The process to appoint his successor was underway and the board would make further announcements in due course.

It said Hayward had guided the company, which owns local brands such as Game, Makro, Builders Warehouse and CBW, through “exceedingly challenging market conditions” and had worked to position the business for future growth.

“Under his leadership we have seen the introduction of Value Added Services, the development of a shared group logistics service, and the implementation of competitive online offerings in Makro, Game and Builders Warehouse,” said the company.

“Massmart has an experienced executive management team, who along with Guy’s successor will continue to focus on the improvement of Massmart’s high-volume, low-expense business model that saves our customers money so that they can live better.”

Massmart confident it can turn Game around

Source: CNBC Africa

Massmart had a tough financial year, reporting a decline in headline earnings per share by 31.7 cents.

The biggest contributor to the company’s decline were Game, Dionwired and Hi-Tech.

Investors have been surprised by the extent of the decline.

According to Massmart CEO, Guy Hayward, the company’s sales are an accurate depiction of the general state of the South African economy.

“We are also disappointed in our profit growth, which is down 16%,” he says.

Food and Game are already 22% of total sales, and 2018 saw a move to Johannesburg and the restructuring of management and support roles.

“We are confident that we are doing the right things and that customers will respond to us in 2019,” Hayward says.

Turning Game around

Game will be kept very relevant to customers. The R20-billion business has up to 40% market share in many places; in fact, the company sees one in three TVs sold through it.
Going forward, Game will need to drive down costs and manage selling prices better.
“We need to make sure we offer customers wonderful merchandise that is very well priced. We need to shout about it; we need to make sure they know what they can buy in Game. We need to offer exciting products – maybe exclusive deals we have that no one else has, and we need to make sure our food is very well priced,” Hayward concludes.

 

Source: Trade Tatler

A trading statement from Massmart last week resulted in a corresponding -20% drop in the share price.
Sales for the 52 weeks through December grew just +2.9%, or +1.2% on a like-store basis, with sales growth slowing in all divisions except Massdiscounters (Game and DionWired) over November and December, despite satisfactory Black Friday sales.
The problems are three-fold:

  1. Part of the problem is of course the state of our economy and its shaky 1% growth
  2.  Neglect on the part of the new parent company has played a role: Walmart has had much bigger fish to fry in India, China and online than the African market
  3. Walmart’s requirements in terms of organisational structure, processes and product standards have shackled Massmart’s ability to operate lighter on its feet, making competing against the independents difficult – from the types of products on shelf through to the freedom to trade on the shop floor.

Massmart still failing to deliver for Walmart

Source: Supermarket & Retailer

More than seven years after the $2.5bn acquisition of Massmart by Walmart, the merger between the world’s largest company by revenue and Africa’s second-largest distributor of consumer goods is yet to set the SA retail sector alight.

Walmart may have been overoptimistic about the deal and have underestimated the difficulties that SA retailers face

Walmart’s high-profile purchase of a 51% interest in Massmart — whose products straddle the general merchandise, liquor, home improvement and wholesale food markets — heralded the US group’s foray into Africa. It was part of a broader strategy to get into high-growth markets. With such growth aspirations in mind, Massmart, a high-volume, low-margin business, was a logical target for Walmart.

“We see an opportunity to take our mission and apply it in this part of the world and create growth opportunities,” Walmart CEO Doug McMillon said in January 2011. Indeed, since the deal was consummated in June 2011, Massmart, the owner of Game, DionWired, Makro and Cambridge brands, has increased the number of its stores from 288 to 424, as of January 2018.

It has a presence in several sub-Saharan African countries through its four operating divisions, Massdiscounters, Masswarehouse, Massbuild and Masscash. But, overall, the transaction that promised so much has delivered very little.

It is difficult to overlook that Walmart bought the majority shareholding in Massmart at R148 a share. As of Friday, Massmart’s share price has slipped 14.35% since the implementation of the transaction on June 20 2011. The shares were up 2.63% on Friday at R113.66.

“It has been disappointing,” says Ian Cruickshanks, Institute of Race Relations chief economist, of Massmart’s performance over the seven years.

Walmart may have been overoptimistic about the deal and have underestimated the difficulties that SA retailers face, Cruickshanks says.

“We are still very much an emerging economy. They must be prepared for the long run. But they have done a lot recently to reduce costs,” he says.

In the year ended December 2017, Massmart’s costs fell 1.3% and expenses as a percentage of sales were 16.4%. In light of the constrained consumer environment, which is stifling sales, Massmart has no choice but to prioritise cost savings.

Analyst Chris Gilmour has been scathing about what he says is Massmart’s lousy performance since the 2011 milestone deal. In that period, Massmart’s share price has lagged the general retailer’s index, which has grown by 77.98%, as of Friday.

Massmart is taking strain from deflation in durable goods, Gilmour says. “Circumstances have not gone their way.” he says.

Massmart says the deflation in domestic appliances and electronics has not stimulated customer spending because hard-pressed lower and middle income consumers prioritise spending on food.

In the SA market, which accounts for 91.6% of Massmart’s total sales, food and liquor make up 56% of sales, with durables responsible for the rest. Growth into the food market is a sore point for Massmart because the group feels hard done by what it calls anticompetitive lease exclusivity leases that rivals in the grocery retail market — Pick n Pay, Spar and Shoprite — have at malls where Massmart wants to roll out its Game FoodCo stores.

Massmart took its concerns to the Competition Commission in 2014. The Competition Tribunal earlier in 2017 dismissed Massmart’s complaint, frustrating the retailer’s plans to sell fresh fruit and vegetables, meat, dairy and bakery products at more shopping malls.

Cruickshanks says all is not lost for Massmart and has commended its pursuit of new revenue streams through value-added services and online businesses. In the six months ended July 1 online sales soared 69%.

Prospects for the retail sector remain weak and are unlikely to improve in 2017, as confirmed by Massmart’s interim sales update released on Monday.

In the 26 weeks to June 25, Massmart recorded R42.5bn in sales, representing an increase of 0.5% compared with the year-earlier period. Comparable store sales fell 1.6%. Product inflation was estimated at 3.2%.

Massmart’s share price initially dipped more than 2% after the announcement, but bounced back into marginally positive territory. “I don’t know if there was anyone who was massively disappointed by the update,” said Old Mutual Investment Group consumer and industrial sector analyst Brian Pyle.

“Nobody really expected anything else other than what Massmart reported today. People are expecting tough times and the update shows it. That said, these numbers are weak.”

Comparable store sales fell at most of the company’s trading divisions. Like-for-like sales fell 3.5% at Massdiscounters, by 0.2% at Massbuild and 3.3% at Masscash. Masswarehouse grew comparable sales by 1.5% with inflation of 3.9%.

Mergence Investment Managers portfolio manager Peter Takaendesa said the food side of the business performed better than nonfood categories. Sales growth in food was 3%. In general merchandise it fell 2.9%.
“As we saw in the recently reported Woolworths numbers, the trend of better food sales relative to nonfood consumer goods is evident in Massmart’s numbers. Consumers are largely in survival mode and discretionary items have to take a back seat for now,” he said.

The biggest concern for all retailers was the downward trend in growth rates to levels much lower than cost inflation. This came at a cost to profit margins, said Takaendesa.

For Massmart, he expected a technical improvement in the sales rate for the rest of the year, but a stronger recovery was only likely later in 2018 “and could be better if we get an interest rate cut sooner to help consumer confidence recover”.

“It’s going to be difficult for Massmart’s turnaround efforts to show the intended results given much weaker consumer spend and the mid-long term risks posed by independent e-commerce rivals such as Takealot, which need to be monitored closely,” he said.

Ashburton Investments said that it preferred Woolworths in this sector.
Woolworths said it expected its adjusted headline earnings per share for the year to June 25 to fall between 5% and 10%.

“Massmart’s update shows the really poor consumer environment in SA,” said Ashburton portfolio manager Wayne McCurrie. “This is not unique to Massmart. All consumer firms are suffering the same — a subdued consumer in recession.”

McCurrie said the performance of Massmart’s food division was reasonable and the performance of the nonfood goods was “terrible”, but that the market knew this after SA fell into recession.

Pyle said the next six months were not going to be any better for any retailer, but that the sector could see recovery in 2018.

By Colleen Goko for Business Day

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

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

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

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