Massmart gains as it cuts costs

Johannesburg - Wal-Mart Stores experience in controlling

costs is helping South African grocery and general goods retailer Massmart

Holdings improve profit even as local shoppers have been hurt by high food

inflation. The shares climbed the most in more than two months.

Trading profit rose 12 percent to R2.6 billion in the

year through December 25, the Johannesburg-based retailer said in a

statement Thursday. The company, majority-owned by Bentonville, Arkansas-based

Wal-Mart, raised the dividend by 16 percent to R2.99 a share.

“I’m pleased to see the recovery in profit was sustained

in the second half and was better than I expected,” said Alec Abraham, a senior

equity analyst at Johannesburg-based Sasfin Securities. “Cost control was good

and Wal-Mart’s know-how on cost management is no doubt helping.”

Massmart has been able to negotiate lower rentals for

some stores, moved staff from receiving goods to the shop floors and cut travel

costs, CEO Guy Hayward said by phone.

The shares rose 8.3 percent to R142.67 as of 11:42 a.m.

in Johannesburg, the biggest intraday gain since December 8. That brings the

increase this year to 13 percent and gives Massmart a market value of R31

billion.

Read also:  Massmart grows sales to R91.3bn

South African shoppers have been hurt by an inflation

rate that climbed to a 10-month high of 6.8 percent in December, led by surging

food costs following the worst drought since at least 1904. That’s been

compounded by unemployment of 27 percent and economic growth in 2016 that was

the slowest in seven years.

“If the economic environment improves even marginally

with lower food inflation, a stronger rand - potentially even lower interest

rates towards the end of the year - then consumer wallets will have a bit more

money left at end of the month,” Hayward said. “Generally that money then goes

back into discretionary spending like general merchandise and home

improvements.”

Massmart plans to open 58 stores in two years to bring

its total to 470. Eleven of these will be in African countries beyond South

Africa, he said.

BLOOMBERG