Struggling JSE-listed retailer and distributor of consumer goods Massmart says it expects a 51% decline in headline earnings for the 26-week period ended June 26.

This will translate to a potential loss of R974.9 million, compared with the R645.4 million loss in the previous comparable period.

While the group’s general merchandise sales dropped to 1.4%, total group sales amounted to R41.3 billion which it says is “broadly in line with sales recorded in the previous period”. Sales were mainly backed by liquor and food sold in its hospitality and restaurant chain.

Constrained consumers

The retailer’s losses were exacerbated by rising inflationary costs, which put margins under pressure.

“As previously reported, sales relating to general merchandise, our second-largest product category by value, have been softer, as consumers prioritised non-durable goods spending in the context of rapidly increasing food, energy and transport cost inflation,” the group said in a trading update on Tuesday.

Although the construction sector increased trade sales at its Builders stores, margins were also still relatively low.

“Our trading result has also been negatively impacted by two other material items. These are a once-off negotiated lease exit settlement cost of R184 million, relating to the Riverhorse Distribution Centre that was destroyed in the July civil unrest, and increased finance costs attributable to a higher opening net debt balance compared to the prior year, also as a direct consequence of the impact of the July civil unrest,’ it said.

However, the net debt balance has declined following the settlement of R370 million in business interruption claims.

The sale processes of the Cambridge Food, Rhino and Massfresh businesses to Shoprite for R1.36 billion – as recommended by the Competition Commission – continues.

Massmart’s share price dropped by 8% on Tuesday morning.