Massmart sales update

This morning we received the first sales update of the year from one of our big retailers and in this case our recommended entry into the sector. Massmart have released their sales numbers for the 26 week period ending on 23 December 2012. Even though Christmas day is not included, the Christmas period is certainly reflected in these sales numbers.


"The Group's total sales for the 26 weeks ending on 23 December 2012 increased to R36.1 billion, representing growth of 14.6% over the prior 26-week period, with year-to-date sales inflation estimated at 3.7%. Comparable store sales increased by 7.3%.


Total and comparable sales growths (and year-to-date inflation) over this period in each Division respectively were:

- 7.7%, 2.6% (0.8% inflation) in Massdiscounters;

- 23.4%, 8.6% (3.4% inflation) in Masswarehouse;

- 10.0%, 9.7% (2.7% inflation) in Massbuild; and

- 15.0%, 8.6% (6.4% inflation) in Masscash."

The share is priced for fast growth so this may disappoint some participants but I find it quite encouraging. Same store sales of 7.3% is a good sustainable number while the company plans on massive expansion in terms of new stores. As you can see, half the growth was from same store sales while the other half is attributable to expansion. Once the expansion really gets underway I would expect that 50/50 split to be more like 70/30. If like for like sales are growing at 7.3% with expansion contributing 70% of growth, we could see numbers closer to 25%.

Like I have mentioned before, Massmart is one to be patient with. At this stage they are sacrificing current profits for future expansion so valuing the company on earnings can be misleading.


It is also very interesting see where the growth is coming from. Massdiscounters which includes Game, Foodcorp and DionWired underperformed. Game and Foodcorp are still being restructured to include fresh produce while Dion Wired is geared towards higher income groups who are not growing as fast as the up and coming middleclass. Masswarehouse which includes Makro and Fruitspot comfortably outperformed. In the last period there were only 16 Makros so adding 1 or 2 will make a big difference to sales hence the big expansion growth. It is good to see people embracing the big Walmart style warehouse shopping that Makro specializes in.


Massbuild had the best same store sales which is encouraging for that industry as a whole. This is why we also like Cashbuild. They are planning the expansion of Builders Warehouse and Builders Express to be north of our borders. And then lastly Masscash which compromises the wholesale and retail cash and carry brands was pretty much in line with the overall growth. Masscash has a lot of growth potential but it seems like inflation hit this sector quite hard. A first class example of how the poor get hit worse by inflation as increasing petrol prices and labour costs get pushed onto these high volume low margin goods.