Massmart, the holding group of retailers Makro and Game stores, announced results for the 26 weeks ended 27 June 2021, reporting total group sales for the period of R41.3 billion, representing total sales growth of 4.4%.
Gross margin increased by 43 basis points while expenses decreased by 1.8%, the group said on Friday (27 August), resulting in a total group trading profit of R444.2 million – a 266.6% year-on-year increase.
The group reported a headline loss per share of 298.8 cents, up 40% from a prior loss of 501.6 cents per share.
Massmart pointed to strong profit before interest and tax (PBIT) increases at Builders (up 184%) and Massmart Wholesale (up 70%). It also benefitted from the positive impact of turnaround interventions, including improved gross profit margins and delivery against expense savings targets aimed at sustainably resetting the group’s cost base.
Group earnings were negatively impacted by non-cash impairment charges of R597.7 million, predominantly allocated to the Game SAP ERP software asset, it said.
Massmart CEO Mitch Slape said: “The period has been characterised by continued group-wide expense control and margin growth. This, together with strong Builders Home Improvement and Makro General Merchandise and liquor sales, has contributed to a much-improved trading profit performance.
“We achieved this in a demanding trading environment notable for; continued disruption to liquor sales, poor food, liquor and consumables demand amongst our core business-to-business Hotel, Restaurant and Catering (HORECA) customers, and constrained middle-income discretionary spending on durable goods.”
Notable turnaround highlights
Massmart said that total capital expenditure amounted to R552.6 million, up 56.1% from the same period in 2020. The group said it delivered a further R380 million in cost savings. This translates to total banked cost savings of R1.1 billion in the 18 months to June 2021, against a three-year (December 2022) target of R1.8 billion.
The group concluded negotiations for the sale of Cambridge Food, Massfresh and 12 Cash & Carry stores for a consideration of R1.36 billion within five months of announcing the decision to dispose of these assets.
“Combined with the pending reduction in the Game store portfolio exposure in East and West Africa, and previously completed portfolio actions involving the closure of Dion-Wired and the sale of 11 Cash & Carry stores, this will deliver annual PBIT improvement of approximately R750 million per annum,” it said.
In September 2020, Massmart launched its ‘Game Reimagined’ test store in the Mall of Africa, providing a new vision of where the group said it wants to take the business.
Massmart said it completed the relay of 64 Game stores within six months since the programme’s inception in February 2021. This, the group said, resulted in double-digit growth in basket size and 13% average comparative sales growth in the pilot stores.
The revamped stores offer free WiFi, a play area for kids, price check booths, sampling vending machines, self-checkout counters, and QR codes on products that link to Game’s online store.
“The programme will be rolled out across the entire Game store portfolio by November 2021.”
“This outcome, along with store divestiture in East and West Africa, reduced depreciation expense as a result of the SAP impairment, already reduced labour costs, supply chain infrastructure cost reduction and further portfolio optimization opportunities, supports Massmart’s optimistic outlook towards Game,” the group said.
White space market review identifies potential growth opportunities
Massmart said it has completed a Home Improvement, Wholesale and eCommerce ‘white-space’ market review. The outcome confirmed a clear path for future growth, including:
- Home Improvement growth potential of R1.8 billion – R2.9 billion in more than 50 metros and emerging townships.
- Wholesale growth potential of R11 billion – R18 billion through big box and small proto stores, complemented by expanded, value-adding product and services offering and an enhanced commercial platform.
- eCommerce growth potential of 17-26x current online sales through a seamlessly integrated retail and wholesale multichannel proposition.
“Toward this end, we have established a unified group-wide eCommerce capability, increased existing stake to 100% shareholding in Wumdrop to enhance last-mile delivery and are in advanced negotiations to acquire a majority stake in OneCart to drive on-demand eCommerce delivery segment,” it said.
“Massmart’s two business unit and centralised shared services operating structure has positioned the group to allocate capital resources, leverage group-wide infrastructure and focus management time more efficiently. This will allow us to take full advantage of new market opportunities such as those identified in our white-space market review,” said Slape.