Massmart will be restructuring its business in South Africa amid an expected full year loss of over R1.2 billion, and a massive decline in trading profit.
The group published a trading update for the period ending 29 December 2019, warning of the staggering full-year loss due to tough trading conditions in South Africa.
The company expects to report headline loss of between R1.13 billion and R1.22 billion for the year, down from headline earnings of R901.2 million in 2018 (as much as 236% lower).
Headline losses per share are expected between 522 cents and 563 cents, down from HEPS of 416.5 cents before.
Trading profit for the full year, before the impact of IFRS 16, is expected to be 73.0% to 83.0% lower than the prior-year trading profit of R2,068.9 million.
Including the impact of IFRS 16, trading profit is expected to be 40% to 50% lower.
The net loss, it said, is projected at between R1.2 billion and R1.4 billion.
South African struggles
Massmart said that the second half of 2019 was characterised by tough trading conditions, which included load shedding and consumers under pressure due to the creeping economy.
“Economic growth contracted in Q3 2019, whilst Q4 2019 offered little relief,” it said.
In addition to the material impact of trading disruptions and customer inconvenience caused by aggressive load-shedding in early December, consumers continued to prioritise spending on non-durables over spending on durable goods, it said.
During the course of H2 2019, food sales increased by 3.3%, liquor sales increased by 0.4% while general merchandise sales – the group’s biggest and largest margin category – decreased by 2.6%. Home improvement sales increased by 1.9%.
The group said it delivered a very strong Black Friday sales performance – unfortunately, this did not carry-over into the festive period, as sales growth in Q4 2019 was 0.5% as compared to the same period in 2018.
Massdiscounters – which includes Dion Wired and Game – saw total sales for the 52 weeks of R19.8 billion, up only 0.3% up on last year.
This was most notably impacted by lower consumer spending on durable goods, the group said, with comparable stores sales contracting by 2.1%.
Durable goods include appliances, tools, electronics and similar products.
Overall sales growth for H2 2019 was 0.9% (down from 5.5% in H1 2019) with comparable stores sales contracting by 0.3%.
Dion Wired and reorganisation
At the start of January, Massmart said that it was in talks with unions about store closures and jobs cuts.
This includes a plan is to shutter the 23-store Dion-Wired chain and 11 Masscash wholesale outlets – impacting around 1,440 employees.
While the group describes these as ‘potential’ closures, it has said that the intention is to close the brand in the country. The closures are dependent on the outcome of the retrenchment process and consultations with unions.
DionWired sales have come under pressure as low consumer confidence has affected sales of high price-ticket electronic items. Declining customer traffic into major shopping malls where some larger Dion Wired stores are based, has also impacted sales.
Following a review of its retail and wholesale routes to market, and the associated rationalisation of the group, Massmart said it is now also overhauling its current operating model.
As of 1 February 2020, the group said that it will be consolidating its four divisions – Masscash, Masswarehouse, Massbuild, and Massdiscounters – into just two units.
- Massmart Retail – This unit will comprise of the Builders, Game, Dion-Wired and Cambridge Food trading brands. Llewellyn Walters, the current Builders chief executive, has been appointed as the chief executive of Massmart Retail;
- Massmart Wholesale – This unit will comprise of the Makro, Shield and the Wholesale Cash & Carry trading brands. Doug Jones, the current Makro chief executive, has been appointed as the chief executive of Massmart Wholesale.