Massmart sales update

Yesterday we received a sales update from Massmart. These come in quarterly so to refresh your memory lets first look at the numbers from the first quarter of the year released in April.


"For the 14 weeks to 31 March 2013, total sales increased by 10.3% and comparable sales increased by 6.0%, continuing the slower sales trends experienced towards the close of the financial year."


The update yesterday was for the first 26 weeks (6 months) of the year. Here is what the company had to say.


"Shareholders are advised that the Massmart Group's total sales for the 26 weeks to 23 June 2013 increased to R32.3 billion, representing growth of 8.9% over the prior comparable 26-week period, with annual product inflation estimated at 2.9%. Comparable store sales increased by 5.5%."


That definitely shows a deceleration in growth which I guess is to be expected. We have spoken extensively about the weakening of the South African consumer.

Throughout the divisions Massdiscounters increased sales by 9%, Masswarehouse by 13.6%, Massbuild by 9% and Masscash by 5.5%. As you can see the biggest underperformer is Masscash. This is because it is most focused on the low end consumer who we have already established as the hardest hit in 2013. Masscash compromises 70 wholesale and 44 retail cash and carry stores. This is where many spaza shops in the townships get their supplies. It is sad that the people who struggle the most get hardest hit when poor government policies have negative repercussions on the economy.


What does this mean for Massmart? There are many things happening behind the scenes, especially when it comes to distribution efficiencies. We should be seeing the benefits soon, even more so when more expansion north of our boarders kicks into gear. I still believe there is huge room both in South Africa and the rest of the continent for big warehouse type, high volume, low margin retail. Massmart have been first movers in the region and now have the backing of the kings of that type of retail.


The stock is expensive and current growth rates do not justify the share price which by the way has pulled back from above R200 in May to R170 odd today. It is one to be patient with. The growth will come and that will reflect on earnings but definitely not this year and probably not even next. But over the long term I am confident shareholders will be well rewarded.