Massmart warns of almost R1.4bn loss as SA consumers struggle

Walmart-owned retailer Massmart, whose brands include Makro and Game, warned on Thursday it had swung into a loss in its year to end-December, as SA’s consumers cut back on higher-margin durable goods such as kitchenware and electronics.

In addition to trading disruptions caused by “aggressive” load-shedding in early December, consumers continued to prioritise spending on non-durables, such as food, the company said. During its second half, general merchandise sales — the group's biggest and highest-margin category — fell 2.6%.

The JSE’s general retail index was the worst-performing index in  2019, falling 21.88%, with Massmart’s share price halving.

Retailers have reported that consumers are cutting back on spending amid slow wage growth, rising fuel costs and a VAT hike.

The company expects to post a headline loss of up to R1.226bn for the period, from earnings of R901.2m previously, with that figure exacerbated by the effect of a change in accounting standards.

The group’s net loss, including the effect of accounting standards that bring leases onto the balance sheet, could be as much as R1.385bn, the company said.

Excluding the accounting change, the group is expecting a net loss of between R862.6m and R951.4m, from a profit of R888.6m previously.

Sales grew 3% during the year, resulting in total sales of R93.bn, Massmart said.

The retailer, which announced in January it could retrench about 3% of its workforce, said on Thursday it will also implement an organisational shake-up.

The group’s four divisions will be reorganised into two business units from the beginning of February.

Massmart Retail will comprise the Builders, Game, DionWired and Cambridge Food trading brands.

Massmart Wholesale will take in Makro, Shield and the group’s wholesale cash brands.

This would allow Massmart to leverage group-wide procurement and harmonise business practices, the group said.

The company also expects the writedown from the effect of closing up to 34 DionWired and Masscash stores to be in a range of R200m and R250m before tax.

In morning trade Massmart’s share was down 4.95% to R48.