Picture: REUTERS
IN THE BAG: Walmart paid $2.4bn for 51% of Massmart last year. Picture: REUTERS

MASSMART, the South African unit of US retailer Walmart, on Thursday reported a 21% drop in first-half profit, hit by costs related to its deal with the world’s biggest retailer.

Massmart, the high-volume, low-margin retailer that sells everything from televisions to groceries, said diluted headline earnings per share totalled 321.7 cents in the six months to the end of December, compared with 407.3 cents a year earlier.

Headline earnings per share exclude certain one-off items.

A court order last year forced Massmart to double a planned fund to develop local suppliers to R240m to win regulatory approval for Walmart’s acquisition.

Walmart paid $2.4bn for 51% of Massmart.

Excluding that cost, the company said headline earnings per share would have shown single-digit growth, reflecting tight margins from an aggressive cut-price strategy to double market share in food sales.

"As consumer expenditure slowed, we saw increased discounting among most retailers and the inevitable fight to hold or gain market share," the company said.

Massmart said last week that first-half earnings were likely to drop by as much as 25%.

South Africa’s third-largest retailer by value is expanding into food retailing, pitting it against dominant grocers such as Shoprite and Pick n Pay.

The Johannesburg-based company aims to take its grocery market share to as much as 20% in the next few years from 10% now.

Massmart said sales for the period under review increased 14.7% to R36.1bn. Sales for the eight weeks to February 17, increased 11%.

"We are concerned that sales growth may be under some pressure for the remainder of the financial year," the company said.