February 27, 2020 / 6:07 AM / a month ago

UPDATE 2-South Africa's Massmart falls to annual loss; no dividend

(Adds detail on impairments, expenses, margin, Game stores)

By Nqobile Dludla

JOHANNESBURG, Feb 27 (Reuters) - South Africa’s Massmart fell to an annual headline loss of 1.1 billion rand ($72 million) as consumers cut back on discretionary spending on items such as appliances, the retailer said on Thursday.

South African consumers are battling with high levels of unemployment, modest wage increases and higher average fuel and utility prices.

Majority owned by Walmart Inc, Massmart reported a headline loss for the 52 weeks ended Dec. 29 versus a profit of 900 million in 2018. It did not declare a final dividend.

Sales rose 3% to 93.7 billion rand while comparable sales grew just 1.5%.

Food and liquor sales jumped by 5.1% but general merchandise sales fell 1.3%. Its high margin home improvement sales increased 3.4%.

Sales growth was under pressure, especially in the second half of 2019, the retailer said, and most evident in general merchandise, its biggest category by value and by margin contribution.

It delivered a very strong sales performance for Black Friday at the end of November, it said, but this did not carry over into the December holidays.

“The sales performance across our major categories is reflective of the spending pattern of a financially constrained consumer who continues to prioritise spending on non-durables over durable goods,” the retailer said.

Promotions also weighed as gross margins fell to 18.9% from 19.5%, the retailer said. It expects margin pressure to persist in 2020.

Expenses grew 10.2% on employment costs, new store openings, increased municipal tariffs, electricity costs and costs associated with power generation due to power cuts in February and December.

Present in 12 African countries, Massmart also booked impairment charges of 169.5 million rand as a result of a review of loss-making stores and non-current assets held for sale.

GAME RESET

Massmart will start removing fresh and frozen food from 22 of its Game stores in 2020, Massmart Retail CEO Llewellyn Walters told analysts at the result presentation.

Refrigeration will be moved to Massmart’s food and wholesale chains Cambridge, Rhino and cash and carry stores.

“The benefits that this brings is our operating cost... electricity, maintenance, because refrigeration does require a lot of maintenance and is effectively energy hungry. It gets the business back into a low-cost operating model,” Walters said.

New CEO Mitch Slape announced a turnaround plan in January aimed at cutting costs and boosting sales and margins. Massmart will exit poorly performing categories such as fresh and frozen food and will close underperforming stores.

$1 = 15.2377 rand Reporting by Nqobile Dludla; editing by Sherry Jacob-Phillips and Jason Neely

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