Despite posting weak results for 1H20, MSM management asserts that there are strong fundamentals with the improved GP margin and tight expense control evidence that its restructuring efforts are showing results. However, the underlying trend growth of each of the divisions (adjusting for lost sales) remains weak and we contend that there is too much noise in the results to make any reasonable assessment if strategies such as EDLP are yielding results. We believe the GP margin improvement may have been aided by abnormal trading conditions, which resulted in changed shopping behaviour that supported EDLP. The verdict on MSM’s EDLP efforts can only be known once shopping patterns return to normal, in our view.
