S.Africa's Massmart HY profit muted by weak consumer spending

South African retailer Massmart Holdings reported a drop in half-year profits on Thursday as cash-strapped consumers prioritised food over higher-margin discretionary goods such as electronics.

South African retailers have struggled to lift earnings as elevated household debts, higher fuel prices and an increase in value-added tax squeezed consumer income at home.

In the rest of Africa, retailers are battling with currency weakness against the dollar and lower commodity prices.

Massmart, part of Walmart Inc, said it took its biggest hit at its electronics businesses as consumers opted to spend on food over durables.

“One of the economic realities of this consumer pressure is that people only have money for about three to five days of the month when they get paid,” said Massmart chief executive Guy Hayward.

“Something most retailers are doing is looking at private label, where you can offer a lower price product at a quality similar to international brands.”

Retailers including Woolworths and Shoprite reported declines in their full-year earnings this week, similarly impacted by constraints on consumer spending.

Massmart’s total like-for-like sales for the six months ended July grew 1.9 percent to 41.6 billion rand, while online sales increased 69 percent. Trading profit before interest and tax fell 19.5 percent.

The company’s sales on the rest of the continent, where it operates in twelve African countries, were hampered by currency weakness against the dollar and lower commodity prices, it said.

Headline earnings per share before restructuring costs were 133 cents per share, a 20 percent fall from 169 cents per share in the same period of the previous year.

Hayward said the company is “cautiously optimistic” about domestic growth for the second half of the year due to the current volatility of the economy.

At 1406 GMT, shares in Massmart weakened 2.83 percent to 107.86 rand.