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Wal-Mart's South African unit lags rival in expansion

Shoppers load their goods into a car outside a Makro branch of South African retailer Massmart in Cape Town May 31, 2011. REUTERS/Mike Hutch
Shoppers load their goods into a car outside a Makro branch of South African retailer Massmart in Cape Town May 31, 2011. REUTERS/Mike Hutch

By Tiisetso Motsoeneng

JOHANNESBURG (Reuters) - Wal-Mart's South African unit, Massmart , reported a 10 percent fall in first-half profit on Thursday hurt by a weak market and slow expansion into other African countries.

Massmart - and clothing retailer Truworths , which also reported results - are among a growing number of South African companies to signal concern about anemic consumer demand in the continent's top economy.

Given South Africa's dismal growth prospects, investors are keen to see evidence of retailers expanding into fast-rising sub-Saharan economies.

But Massmart has been slow to deliver, losing ground to domestic rival Shoprite which on Wednesday laid out an ambitious plan to open 47 stores outside of South Africa.

Shares in Massmart, which are down about 20 percent this year, were down 2.9 percent to 150.17 cents at 9:54 a.m. ET, underperforming a slightly higher JSE Top-40 index <.JTOPI>.

"We want to slightly shift our focus away from South Africa and put more resources into African growth," Chief Executive Grant Pattison said at the company's presentation of first-half results.

Massmart, 51 percent-owned by the world's biggest retailer, said all but 10 to 15 stores to be opened over the next three years would be in South Africa.

Analysts said Massmart's expansion could be quicker if key markets such as Nigeria had modern shopping infrastructure for its flagship Game stores.

"If Massmart considers smaller, standalone stores they would probably expand faster," said Patrick Ntshalintshali, a portfolio manager at Vunani Fund Managers.

Massmart runs 29 stores in 11 African countries outside South Africa which contribute about 8 percent to its total sales.

Rival Shoprite, by contrast, runs 153 supermarkets and could double that number in three to four years, Chief Executive Whitey Basson said this week.

Massmart could also boost presence on the continent with acquisitions but Pattison said there were few retailers that would fit into its stable.

He declined to comment on news that Massmart is looking to take a controlling stake in Kenyan supermarket chain Naivas, a deal which could double its foreign outlets.

Massmart, which sells everything from groceries to televisions, said headline earnings per share fell 9.9 percent to 181 cents in the first six months of the year.

Headline EPS, South Africa's primary profit gauge, excludes certain one-off items.

Massmart said favorable currency swings added 134 million rand ($13.09 million) to the bottom line, causing headline EPS to increase by 52 percent.

Sales increased 8.9 percent to 32.4 billion rand and the company maintained its dividend payout at 146 cents per share.

"There's little on the macro-economic horizon that suggests any improvement," said Massmart. "We believe the remainder of the year will continue to see sales under pressure."

Separately, Truworths, South Africa biggest listed clothing retailer, reported an 8 percent rise in full-year profit Thursday but warned that debt-laden consumers might reduce their spending.

South African retail sales grew by a smaller-than-expected 1.9 percent in June, government statistics showed last week.

(Editing by Jason Neely)

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