Total group trading profit grows by 266.6% to R444.2 million
Today (27 August 2021) Massmart 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 and comparable store sales growth of 4.4% and 4.8% respectively. Gross margin increased by 43 basis points while expenses decreased by 1.8%. Overall, this resulted in total group trading profit of R444.2 million (a 266.6% year-on-year increase).
The group’s performance was supported by 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 exceptional 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.
Commenting, 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.”
Continued track record for delivery against turnaround objectives
Massmart continued to deliver against the turnaround commitments communicated to shareholders in January 2020. Notable turnaround highlights for the period include:
Delivering 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.
Concluding 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 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.
Completing the relay of 64 Game stores within six months since inception of the programme in February 2021, resulting in double-digit growth in basket size and 13% average comparative sales growth in the pilot stores. The programme will be rolled-out across the entire Game (South Africa) 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.
“I am pleased with the culture of accountability for delivery against turnaround commitments. Recently epitomised by the supply chain team who opened a fully operational temporary distribution centre within 10 days of losing our Riverhorse facility to the KwaZulu-Natal unrest. Remarkably, this was accomplished while simultaneously remaining on track to open three state-of-the-art distribution centres within a six-month period,” added Slape.
White space market review identifies potential growth opportunities
Massmart 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 >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 an advanced negotiations to acquire a majority stake in OneCart to drive on-demand eCommerce delivery segment.
“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,” concluded Slape.