JOHANNESBURG (Reuters) – South African retailer Massmart Holdings Ltd has raised its three-year cost saving target to 1.9 billion rand ($113 million) as it seeks to halt expense growth, improve margins and exit loss-making stores, its chief executive said on Thursday.
A turnaround plan announced earlier this year by the company, majority-owned by Walmart Inc and whose brands also include Makro and Game, has started to yield results, CEO Mitchell Slape told analysts in a presentation.
Shares in the company climbed 11.7% by 1240 GMT, hitting a four-month high, as its improved outlook offset a 1.1 billion rand headline loss for the six months to June 28. The company had warned last week that its half-year loss would deepen because of the impact of the COVID-19 pandemic.
Massmart, whose performance had suffered even before the pandemic as cash-strapped customers battle high unemployment, modest wage increases and higher average fuel and utility prices, has identified 400 million rand in additional cost savings, Slape said.
Those savings include rental reductions, managing utility costs, reducing marketing spend and a recruitment freeze.
He said the company had begun rationalising some group functions and is consolidating support teams into fewer physical office locations.
Massmart has also appointed a Walmart specialist as chief supply chain officer as it continues to reorganise its supply chain and negotiate better terms with suppliers.
The company will begin seeing significant cost savings from the second half of the year, Chief Financial Officer Mohammed Abdool-Samad said.
Total group expenses grew just 1.9%, compared to 19.3% in the same period last year, as employment costs and occupancy costs declined 2.2% and 6.4% respectively.
Meanwhile its gross profit margin grew 90 basis points to 20.1%.
However, panic buying and a demand spike seen at major department store chains ahead of a lockdown imposed in South Africa in late March was not enough to boost sales.
Government-imposed restrictions meant Massmart was not allowed to sell liquor, tobacco, building materials, and general merchandise products such as TVs. Those items contribute about 56% of its total sales.
Massmart lost 4.6 billion rand worth of sales during the initial nine weeks of the lockdown. Its total sales fell 9.7% to 39.6 billion rand in the first half as a whole, with comparable-store sales decreasing by the same amount.
Online sales surged by a record 95% but the net impact was minimal as they contribute just 2.1% to total turnover.
($1 = 16.8514 rand)
Reporting by Nqobile Dludla; Editing by Rashmi Aich and David Holmes