February 28, 2013 / 6:16 AM / 5 years ago

UPDATE 1-S.Africa's Massmart profit down as spending slows

* Diluted headline EPS at 321.7 cents vs 407.3 cents

* Sales up 14.7 percent to 36.1 billion rand (Adds details)

JOHANNESBURG, Feb 28 (Reuters) - Massmart, the South African unit of Wal-Mart Stores Inc reported a 21 percent drop in first-half profit, hit by costs related to its deal with the world’s biggest retailer.

Massmart, the high volume, low margin retailer that sells everything from televisions to groceries, said diluted headline earnings per share totalled 321.7 cents in the six months to end-December compared with 407.3 cents a year earlier.

Headline EPS, the primary measure of profit in South African, exclude certain one-off items.

A South African court last year ordered Massmart to double a planned fund to develop local suppliers to 240 million rand ($27 million) to win regulatory approval for Wal-Mart’s acquisition.

Wal-Mart paid $2.4 billion for 51 percent of Massmart.

Excluding that cost, the company said headline EPS would have shown single-digit growth, reflecting tight margins from an aggressive cut-price strategy to double market share in food sales.

“As consumer expenditure slowed, we saw increased discounting amongst most retailers and the inevitable fight to hold or gain market share,” the company said.

Massmart said last week that first-half earnings would likely drop by as much as 25 percent.

Massmart, South Africa’s third-largest retailer by value, is expanding into food retailing, pitting it against dominant grocers such as Shoprite and Pick n Pay.

The Johannesburg-based company aims to take its grocery market share to as much as 20 percent in the next few years from 10 percent now.

Massmart said sales increased 14.7 percent to 36.1 billion rand ($4.1 billion). It said sales for eight weeks to February 17, increased 11 percent.

“We are concerned that sales growth may be under some pressure for the remainder of the financial year,” the company said. ($1 = 8.8612 South African rand) (Reporting by Tiisetso Motsoeneng; editing by David Dolan)

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