Makro and Game’s owner is bleeding after ‘catastrophic’ update
- Massmart’s share price dropped by more than 16% after the company said it will make a loss of up to R550 million for the six months to June 2019.
- The Walmart-owned company blamed poor sales and increased expenses for the loss.
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The share price of Massmart, the owner of Makro and Game, plunged by more than 16% after the company warned that it will post a headline loss of up to R550 million for the six months to June 2019.
Wayne McCurrie of FNB Wealth and Investments tweeted that the trading update was "catastrophic".
Massmart, which controls almost 40% of the local market for household appliances, blamed its "disappointing performance" on softer-than-expected sales, margin weakness and a 12% jump in expenses. Massmart is controlled by the US retail giant Walmart.
Massmart shares were trading at R48.34 on Tuesday afternoon, down from the R60.69 it was trading at earlier the morning.
Petri Redelinghuys, founder of Herenya Capital Advisors, said Massmart’s financial results will likely show that it hasn’t been able to contain costs in a struggling consumer market.
“In previous years Massmart was doing a good job at controlling costs and therefore post a profit, but now I think it shows that there’s isn’t anything left to cut,” Redelinghuys told Business Insider South Africa.
He said it reflects the struggling South African economy that isn’t showing any sign of improvement.
Massmart said that sales growth slowed "noticeably" in past weeks.
However, earlier on Tuesday, Shoprite surprised the market with a positive trading update, reporting that in the last three months alone, its sales jumped by 9.4% in South Africa.
"Profits in Game South Africa are below the prior period,but much lower in Game Africa and DionWired," Massmart said. “Compounding this are higher costs from the SAP IT project and supply chain and logistics.”
In total, Massmart stores saw sales worth R43.8 billion for the past six months - representing growth of 5.5%. Prices at its stores rose by 2.7% over the past six months.
Massmart’s financial results will be released at the end of August.
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