February 28, 2019 / 6:42 AM / 5 months ago

UPDATE 2-Massmart to focus Africa expansion plans on Kenya, Zambia

* Total of 47 new stores over 3-years

* Store expansion targeting Kenya and Zambia

* FY Headline earnings down 31.7 pct

* Cautious outlook for H1 2019 (Recasts with Africa expansion)

By Nqobile Dludla

JOHANNESBURG, Feb 28 (Reuters) - Massmart Holdings Ltd , one of South Africa’s biggest retailers, plans to add 47 new stores between 2019 and 2021, with about a third of the new space outside its home market.

The company, majority-owned by Walmart Inc, set out its expansion plans on Thursday along with annual results, where the retailer reported a 31.7 percent fall in full-year earnings, sending its shares down sharply.

South African retailers have expanded aggressively outside their domestic market where growth has stagnated due to the weak economy.

But this has also brought problems. Nigeria and Angola, for example, have had currency devaluations, which have hit South Africa’s Shoprite Holdings, highlighting the challenges of doing business in frontier African markets.

Massmart, which has 47 stores in 12 African countries, said its latest expansion plan would be concentrated specifically in Kenya and Zambia.

“Zambia and East Africa are interesting to us because they’re not totally dependent on mineral resources like West Africa is,” Group Chief Executive Guy Hayward told Reuters.

“Kenya and Zambia have quite strong tourism industries and little bit of local industries so the economic play there is a bit more robust.”

Massmart, which sells general merchandise, fresh food, groceries, home improvements and appliances, plans to open a Builders Warehouse in Nairobi, Kenya in October, Hayward said. Four stores, including the Builders Warehouse, will be opened in Kenya and five in Zambia. Builders Warehouse is Massmart’s building materials and appliances chain.

Hayward said his Africa strategy was about going “slowly and carefully.” He said the company was still committed to Nigeria, where it has 5 stores.

On South Africa, Massmart said it was cautious about the outlook for the local consumer economy for the first-half of 2019.

South African retailers have struggled to lift earnings and sales to double digits as an increase in value-added tax, unemployment and inflation, coupled with higher fuel prices have reduced consumers’ spending power. Massmart generates 91.3 percent of its group sales in South Africa.

Massmart’s shares plunged 15 percent in early trade on Thursday after its headline earnings, which include restructuring costs, fell to 901.2 million rand ($64.70 million) for the 52 weeks ended Dec. 30, hit by lower sales, rising costs and one-offs.

Sales for the seven weeks to Feb.17, 2019 were at 11.2 billion rand ($800.88 million), representing total sales growth of 5.2 percent and comparable sales growth of 3.9 percent.

“We’re encouraged by that, but the readings that we’re getting about the economy are negative and muted and so are very cautious about the next six-months,” Hayward said. ($1 = 13.9847 rand) (Reporting by Nqobile Dludla and Emma Rumney; Editing by Rashmi Aich and Jane Merriman)

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