SOUTH AFRICA – South African retailer, Massmart reported a net loss of R832.4m (US$54.43 million) in the six months to end-June on increased costs that weakened growing sales.

The Walmart-owned retailer, whose brands include Makro and Game, said that net finance costs grew to R909.6 million (US$59.49m) from R299.7 million (US$19.6m) a year before as borrowings rose sharply.

Massmart said tough trading conditions in South Africa and other African markets weighed on sales growth and placed pressure on margins.

Despite a higher depreciation and amortisation charge, asset write-downs, foreign exchange losses and a surge in finance costs, Massmart reported a 5.5% growth in sales to R43.8 billion (US$2.86bn) during the first half.

Lower sales of high-margin durable goods and higher sales in lower margin food and liquor categories resulted in gross margins falling by 36 basis points while expenses rose by 11.8%.

“Cash-strapped consumers continue to spend proportionately more on our sales promotion activities which causes further gross margin pressure,” Massmart said in a statement.

“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 company said.

“Massmart’s profitability has always been heavily skewed towards the second half of the financial year and particularly the fourth quarter, which makes near-term financial guidance difficult.”

The group said that for the 33 weeks to August 18, total sales were 5% up at R55.8 billion (US$3.65 million), with comparable-store sales up 3.2% and product inflation at about 2.6%.

Massmart’s outgoing chief executive, 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,”

“Going forward we see useful opportunity to improve our operating model to position the business to better adjust to the changed economic reality.”

Assuming the domestic economy does not deteriorate more, Massmart said it expects headline earnings per share for the year to December to be at least 50% below the prior year.