August 29, 2019 / 7:04 AM / 22 days ago

UPDATE 2-S.Africa's Massmart swings to first trading loss in 20-years

* Total sales up 5.5% to 43.8 bln rand

* Expenses up 11.8%

* Low growth economy weighed on results -group CEO

* Scraps dividend (Adds scrapping of dividend, details and forecast)

By Nqobile Dludla

JOHANNESBURG, Aug 29 (Reuters) - Massmart Holdings reported its first half-year trading loss in 20-years and scrapped an interim dividend, hurt by higher costs, foreign exchange losses and slower sales of high-margin goods such as washing machines and flat screen TVs.

The South African retailer and wholesaler, majority owned by U.S. retail giant Walmart, fell to a trading loss before interest and tax for the six-months to June 30 of 1.4 million rand ($91,882.21), versus a profit of 664.4 million rand a year earlier.

The owner of general merchandise and food wholesaler Makro, is the latest South African retailer hit by domestic factors including higher value-added tax, unemployment, inflation and fuel prices which are reducing consumer spending power.

Cash-strapped shoppers continue to prioritise food over durables, resulting in lower sales of high-margin goods and higher sales in the lower margin food and liquor categories.

Total sales rose 5.5% to 43.8 billion rand in the first half but gross margins fell by 36 basis points and expenses rose by 11.8%.

Compounding pressure on the group is the restructuring of its Massdiscounters and Masscash divisions.

"Certainly the sales environment was brutal," group CEO Guy Hayward, who is stepping down at the end of August, said.

"The prevailing low growth economy, coupled with various internal missteps, have contributed to an unsatisfactory set of results."

Massdiscounters, which houses general merchandise and food chains Game and DionWired, reported a wider operating loss of 396.1 million rand, while profit at Masswarehouse, which houses the Makro wholesale chain, fell 31%.

Massmart, like Africa's largest supermarket chain Shoprite , is also battling with currency weakness elsewhere in Africa, especially in Zambia and Nigeria. It reported half-year foreign exchange losses of 81.9 million rand.

Massmart's shares closed up 7.86% at 42.55 rand with FNB Wealth and Investment Portfolio Manager Wayne McCurrie saying plans to arrest the decline in profits had "reasonably impressed" the market.

WALMART VETERAN

Hayward leaves the business to Mitchell Slape, a Walmart veteran, as it looks to reduce new store growth, improve profitability at Massdiscounters and Masscash and lower operating costs at the same time as investing in online sales.

"It is difficult to envisage the South African consumer economy improving in the near-term and negative risks seem heightened in the international geopolitical and economic situation," the retailer said.

Massmart said it expects headline earnings per share (HEPS) for the year to December to be at least 50% below last year's HEPS of 416.5 cents per share on a comparable basis, assuming no further deterioration in the local economy.

Including the impact of IFRS 16 accounting standard, HEPS are seen down 100%.

$1 = 15.2369 rand Reporting by Nqobile Dludla; editing by Sherry Jacob-Phillips, Jason Neely, Kirsten Donovan

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