Massmart to step up expansion outside South Africa as profit jumps

South African retailer Massmart plans to increase its stores outside its home market by more than a quarter in the next two years, the company said on Thursday as it reported an almost 16 percent rise in full-year profit.

Massmart, majority-owned by Wal-Mart Stores Inc, has operations in 13 African countries but still makes more than 90 percent of its sales in South Africa.

"We are going to add 26 percent to our African space in the next 2 years," chief executive Guy Hayward said in an analyst presentation referring to markets outside South Africa.

Massmart, which sells food, liquor, appliances and electronics, has closed some its South African stores as a slowdown in economic growth affected parts of the country's industrial heartland.

Spending by South African consumers has been constrained by inflation, higher debt servicing costs and an unemployment rate of more than 25 percent.

But the company managed to produce strong profit growth partly by containing costs and increasing the profitability of its wholesale and discounting divisions, which had been underperforming, analysts said.

Massmart reported diluted headline earnings per share of 587.6 cents for the 12 months to end-December, compared with 508.8 cents a year earlier, reflecting buoyant food and liquor sales in its home market.

Shares in Massmart rose to a 6-month high of 145.19 rand on the results, but pared gains to stand 8 percent higher at 142.32 rand by 1018 GMT, compared with a 0.2 rise in the JSE's All-share index.

"I suspect that you are starting to see a shift in mix between the structurally challenged wholesale business and the fast growing food retail stores which is aiding profitability," Investec Asset Management analyst Unathi Loos said.

Massmart increased its total retail space by 1.2 percent over the period, closing 10 of its more than 400 stores, and opening 19.

"We are pursuing Africa for growth and diversification," Hayward said, adding that the company would try smaller store formats to get closer to its customers and reduce dependence on shopping mall owners.

Massmart will not venture into countries it does not already operate in, Hayward said.

"Whether investing in the rest of Africa is a good idea or not, depends on your investment horizon … I am optimistic," Investec analyst Loos said.