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Africa’s retail giant posts poor results

Massmart, which is Africa’s second-biggest retailer, has reported interim results which are weaker than expected – and its forecast for the next few months is cautious. The owner of Makro, Jumbo, Dion and Game reports that the “six months to June 2017 rank amongst the most difficult trading conditions in recent memory, not just in South Africa but in most of the 12 other African countries where we have stores”. It says three trends in particular impacted the results, including very weak consumer confidence levels, while Food and Alcohol sales performed relatively better than most discretionary items within the General Merchandise and Home Improvement categories. It says most major commodities moved into deflation in South Africa and the wholesale/informal channel de-stocked aggressively. Massmart also reports the impact of weaker African currencies caused reported Rand sales growth to be lower from those countries.

Massmart's total sales for the six months to June 2017 were R42.5bn, an increase of 0.5% over the prior period, while comparable stores' sales decreased by 1.6%, with product inflation of 3.2%.

Total sales growth from South African stores was sluggish at 1.7% and comparable sales declined by 0.2%. Currency weakness and challenging trading environments saw total sales from ex-SA stores decline by 11.9%.

Like other retailers globally the South African company reports the difficult consumer environment demanded an intense focus on expense management, which resulted in total expenses decreasing by 0.2% for the period, with comparable expenses being 1.0% lower.

Overall, though, group operating profit before interest declined by 6.6% to R765.1m. Headline earnings increased by 2.5% to R328.6m but this was largely due to benefiting partially from lower foreign exchange losses in 2017.

Massmart comprises nine wholesale and retail chains totalling 412 stores in 13 countries in sub-Saharan Africa through the group’s four operating divisions – Massdiscounters, Masswarehouse, Massbuild and Masscash.

The global picture for retailers is mixed as we approach the second half of 2017, with online giant Amazon now a threat to legacy brick-and-mortar shops. Amazon offers lower prices and increased convenience in the US, which has led to an increase in mall closures and bankruptcies.

S&P Global reports that some of the most exposed retailers globally are based in the US, including Sears, DGSE Apparel and the Appliance Recycling Centers of America.

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