Massmart trading update

On Wednesday we received a very informative and encouraging sales update from Massmart. Not because the numbers were good but because it gave some clarity of how operations are going within the business. Let's look at the commentary, then the numbers.


The first part of the update explains to investors that the distraction of the Wal-Mart deal, along with Competition Commission enquiries, interrogations and community commitments, are now a thing of the past. It is now time to 100% focus on implementing their strategy. That's encouraging because although the Wal-Mart deal has been great for the business, the complications surrounding it have surely been distracting for management.


The next part tells us about a bit about what is being implemented.


"We have conducted a thorough review of the business. This has resulted in management changes and redoubled focus on underperforming parts of the business on strategic and operating disciplines, including considering closing or selling underperforming stores."


The next part talks about the massive restructuring of their supply chain which has been completed. I have spoken about this before, the business is investing heavily and gearing themselves up to supply a continent with goods. This may be sacrificing current profits but the future looks bright. And along with the supply chain investments comes new stores.


"We remain focused on store growth in South Africa and sub-Saharan Africa. New store openings have included opening a Makro in Alberton, Builders Warehouse in George, Saverite in Xai Xai, Mozambique, one Cambridge and two Game stores, and the commissioning of our Massbuild national DC in Midrand, Johannesburg. Over the remainder of the financial year to December, we will open 27 stores, including a Makro in Amanzimtoti, Durban, and a Builders Warehouse store in each of Botswana and Mozambique.

The increase in trading space compared to a year ago is 9%.


We have completed the acquisition of seven Makro properties that were previously lease-held and secured a loan from Walmart to fund this purchase."


This makes me excited for what's to come.

Before we look at the numbers here is a reminder of their divisional breakdown (I'm putting this in because I needed a refresher myself).

The numbers looked in line. Total and comparable sales growths in each division 17.0%, 7.4% (2.8% inflation) in Masswarehouse; 5.6%, 4.5% (5.0% inflation) in Masscash; 10.0%, 4.5% (0.7% inflation) in Massdiscounters; and 7.6%, 7.5% (2.9% inflation) in Massbuild.


The big Masswarehouse growth is on the back of new Makro stores.


I am encouraged by this update as it reinstates what we have been saying about this company all along. Be patient because behind the scenes the hard yards are being covered.