JOHANNESBURG (Reuters) – Massmart shares fell 6.34% after the South African retailer flagged a wider loss of up to 921.5 million rand ($55.75 million) in the first half as surging prices for food and fuel prompted customers to cut back on discretionary purchases.
Massmart, majority-owned by U.S Walmart Inc, said it expects the headline loss for continuing operations in the 26 weeks ended June 26 to widen between 885.7 million rand and 921.5 million rand, from a loss of 358.5 million rand in the prior comparable period.
The retailer said group sales from continuing operations, which excludes the Cambridge, Rhino and Massfresh store brands held for sale, amounted to 38.1 billion rand, a marginal increase of 1.9%, with comparable store sales rising by 4.3%.
General merchandise sales, its second-largest product category by value and margin accretive category, “have been softer as consumers prioritised non-durable goods spending in the context of rapidly increasing food, energy and transport cost inflation,” Massmart said.
Like-on-like general merchandise sales declined by 1.4%.
With those rising costs, consumers are hardly clamouring for home goods, appliances and kitchenware, saddling retailers with high inventory.
Most clothing retailers, however, have recently reported surprisingly better-than-expected sales.
Massmart’s liquor and food sales increased by 21.3% and 6.4%, respectively, reflecting sales recovery in its hospitality, restaurant and catering (HORECA) and wholesale customer base.
Total internal sales inflation relating to food is estimated at 6.8%, the retailer said.
Massmart, which also has operations in the rest of Africa, said in addition to soft general merchandise sales, margin pressure has further been negatively impacted by cost inflation outpacing sales inflation and lower margins in its buildings material business.
Trading has also been negatively impacted a once-off negotiated lease exit settlement cost of 184 million rand relating to a distribution centre that was destroyed in the July civil unrest and increased finance costs attributable to a higher opening net debt balance compared to the prior year, it added.
($1 = 16.5298 rand)
(Reporting by Nqobile Dludla, Editing by Louise Heavens)
