Wal-Mart's South Africa subsidiary Massmart reports yearly sales gain of 9.5% for eight weeks through Feb. 23, a stronger start than company had expected; company plans to diversify into less-cyclical categories, expand food, clothing offering

JOHANNESBURG, South Africa , February 27, 2014 () – Massmart Holdings Ltd., the South African food and general goods retailer controlled by Wal-Mart Stores Inc., rose after Chief Executive Officer Grant Pattison said sales in the first two months of the year have been strong.

The stock climbed 4.3 percent to 116.82 rand by the close in Johannesburg, paring its decline this year to 10 percent. The 11-member FTSE/JSE Africa General Retailers Index rose 0.4 percent today.

Sales climbed 9.5 percent for the eight weeks through Feb. 23, Johannesburg-based Massmart said in a statement today. That was “a much stronger start to the financial year than we anticipated,” Pattison said during a conference call.

South African retailers have been struggling over the past year as high unemployment and inflation hurt consumer spending, with lower- to middle-income earners particularly vulnerable. Retail-sales growth slowed to 3.5 percent in December, compared with 4.4 percent the previous month. South Africa’s Reserve Bank raised borrowing costs in January for the first time since 2008.

Massmart plans to offset lower sales of items such as computers and fridges by expanding its food and clothing offering, Pattison said.

“We plan to diversify our sales mix further into categories that are less cyclical,” he said. “We are over the hurdles of the initial growing pains as a food retailer.”

Estimates Missed

Massmart plans to increase floor space by 6.2 percent in fiscal 2014, adding 26 stores. The company will build on the opening of a small-format food store in Lagos two months ago, with four more planned for the Nigerian city this fiscal year and 10 in total, Pattison said. The company is also developing its online range, he said.

Massmart’s net income rose to 1.28 billion rand ($119 million) in the 53 weeks ended Dec. 29, from 972.3 million rand a year earlier, the company said in the statement. That missed the 1.32 billion-rand average of 10 analyst estimates compiled by Bloomberg as its Game chain of shops struggled to sell household goods. On a comparable 52-week period, profit climbed 21 percent to 1.18 billion rand.

Massmart’s food expansion in South Africa’s rural areas may be challenged by Shoprite Holdings Ltd., Africa’s largest grocer, Alec Abraham, an analyst at Afrifocus Securities, said by e-mail.

“Shoprite is throwing the hammer down in expansion and Massmart will struggle to challenge their competitive advantage in that space,” he said.

Shoprite said this week it plans to open 74 supermarkets by June, bringing its total in Africa to 1,085 stores by the end of its financial year.

--Editors: John Bowker, Ana Monteiro, Emily Bowers, David Risser

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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