Sales update looks good

Yesterday we received a very positive trading update from Massmart for the first half of the year. In fact it was great when you consider the current tough consumer environment we are supposedly facing. For the period ending 29 June 2014 sales grew 10.2% to R35.7 billion. Inflation came in at 4.8% while comparable sales increased 7.1%. Here is the divisional breakdown.





As you can see all the divisions showed nice growth but Massbuild and Masswarehouse were the biggest contributors. It actually paints an interesting picture. Massbuild (Builders warehouse, Builders express) and Masswarehouse (Makro) are their strongest brands and are more geared towards the higher LSM groups. Inflation has, as always had a much bigger impact on the lower income groups. But even so Masscash which is almost directly targets the lowest LSM groups has shown some decent growth and the price increases have been absorbed.


My humble opinion is that the big shock of a weaker Rand has been absorbed and we saw those numbers come through last year. The consumer is making a comeback and many of the other retailers have also hinted this. The big question is whether this is sustainable or not?


At current growth rates as well as the inflation picture I wouldn't be surprised to see retailers under pressure again. But we don't base our long term investment decisions on macro events. That is because macro events swing up and down, they are after all cyclical. We prefer to stick with quality businesses and ride the swells.


Back to Massmart, lets not take away anything from the management team who I am sure have been working very hard behind the scenes to deliver such numbers. Lots of work has been done as far as their distribution is concerned and as mentioned above many of their brands are very strong. I guess the only concern for us is Game. We would prefer them to rebrand Game to Walmart at some stage and leverage off such a strong brand. Time will tell but we continue to hold this quality retailer.