Massmart expects uptick in retail sales from second half
Sector vulnerable to shocks
February 27, 2009
By Tom Robbins
Sales in the retail sector were expected to deteriorate in 2009, Massmart said on Thursday, but the discount retail group foresaw "some improvement" in the second half, barring any further economic shocks.
Retailers and analysts are debating whether lower interest rates and fuel prices will induce consumers to spend more or use their greater disposable income to reduce debt. It is also unknown how many more jobs will be shed in 2009.
Since December 2008 Massmart's sales growth has dipped marginally, giving no clear indication of how 2009 will pan out.
Comparable store sales for the 34 weeks to February 22 were up 11.3 percent compared with a year earlier at the group that owns Game and Makro. This was only slightly weaker than growth of 11.9 percent in the 26 weeks to December 28.
Research by Cadiz Securities and UBS earlier in 2009 suggested sales of discretionary goods could rise in 2009.
Cadiz said real retail spending, including the steadier food category, could grow on the back of wage settlements above inflation, even after an assumed 380 000 job losses.
UBS stuck to its forecast that the lowest point in the profit cycle of furniture and clothing retailers had already been reached but cautioned that this would buck an historic trend.
Traditionally, recoveries have lagged the first fall in interest rates by at least 12 months. In the current cycle, rates were first cut in December 2008.
Management at Truworths and Woolworths has tried to talk down investor expectations of a recovery in the earnings of credit retailers in 2009, as indicated by share prices that started rising in mid-winter 2008.
The stock market, which is forward looking, indicated investors took a calculated bet that that interest rates would fall sharply through 2009, spurring a recovery.
While the country was entering a lower interest rate environment, Massmart noted that the effects of the global economic crisis had begun to be noticed in the sectors most exposed to the slowdown: mining, construction and export-oriented manufacturing.
The group said economies in the rest of Africa continued to perform well, "but are likely to have a delayed reaction". These countries contributed almost 10 percent of sales.
The weakening of the rand against other African currencies boosted profit growth in the 26 weeks to December 28. Profit before taxation was up 11.9 percent to R1.27 billion. Stripping out foreign exchange movements, pretax profit rose 5.9 percent. Group sales were up 13 percent to R22.76 billion.
Chief executive Grant Pattison said he was "certain" Africa's growth would decline, but he was still hopeful there would be no "blowouts".
Commodity prices had generally fallen but not collapsed, Pattison said, and the impact would depend on what happened to prices for each country's dominant commodity export. Massmart was tracking export earnings of countries as an indicator of currency movements, he said.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, said there was a measure of exchange rate earnings risk to Massmart. Other African currencies could weaken against the rand as the global downturn eventually hit those countries too. Even China had been hit and it was likely African countries would be no different, Du Plessis said.
Massmart rose 2.9 percent to R73.30 on Thursday.
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