UPDATE 1-S.Africa's Massmart sees margin pressure

Wed Nov 21, 2012 8:26am EST

* 20-weeks sales up 16 percent

* Shares up 0.6 percent

JOHANNESBURG Nov 21 (Reuters) - South African retailer Massmart expects no growth in margins until the end of 2013 as the unit of Wal-Mart Inc Stores forges ahead with an aggressive cut-price strategy to double market share in food sales.

Massmart, 51 percent-owned by the world's biggest retailer, said sales increased 16 percent in the 20 weeks to Nov. 11, helped by new stores that added 3.3 percent to its trading space. Same store sales were up 7.3 percent with price increases averaging nearly 4 percent.

"While the level of sales is pleasing and gross margins remain steady, the group's net margins are unlikely to expand for the six months ending December 2012 or the year to December 2013," Grant Pattison, Massmart's chief executive officer, said.

The company's operating profit margin fell to 3.7 percent in the year to end-June from 5 percent a year earlier.

Massmart, whose deal with Wal-Mart was completed last year, is expanding its food retail business, challenging South Africa's dominant grocers such as Shoprite, Pick n Pay and Spar.

The company aims to take its food retail market share in South Africa to as much as 20 percent over five years from 10 percent now.

Shares in Massmart rose 0.6 percent to 178.01 rand, in line with the JSE Top-40 index.