Air Of Optimism Around Retail Sector: Lens On Adairs, Kogan, & Baby Bunting

Air Of Optimism Around Retail Sector: Lens On Adairs, Kogan, & Baby Bunting

Summary

  • Australian retail sector exhibiting signs of recovery after taking a hit in April 2020 as retail turnover spiralled 17.9 % in seasonally adjusted terms, following a strong rise in March 2020. Physical store sales widely impacted while online retail is the new trend and performed extremely well.
  • Home furnishing retailer Adairs’ online sales skyrocket 221% during the 5-week store closure period up to 3 May 2020; the Group stores commenced reopening on 7 May with approval for the JobKeeper Scheme eligibility awaited.
  • com acquires and relaunches Australia’s premier furniture and homewares retailers Matt Blatt as an online offering, with the Group’s Active Customers rising to 2,074,000 as at 31 May 2020. Gross sales expanded over 100% across 4QTDFY20 and Gross Profit grew over 130% across the same period.
  • Nursery and bay products retailing giant Baby Bunting’s sales grew 13.2% from 30 December 2019 to 17 May 2020 with online sales contributing 17.3% to the total sales.

The retail sector is a crucial component of the Australian economy and exhibits great diversity in terms of region, size of business, retail format, competition within the sector and the nature of goods sold. The past few months saw various challenges presented by the coronavirus pandemic (COVID-19), and as per the Australian Bureau of Statistics (ABS), the Australia retail turnover for April fell 17.9 % in seasonally adjusted terms, the strongest decline ever published following the strongest ever seasonally adjusted rise in March 2020.

Almost every industry including food retailing, cafes, restaurants and takeaways, and clothing, footwear and personal accessories exhibited a downturn, largely due to inability of businesses like cafes, restaurants and takeaway food services, clothing, footwear and personal accessory retailing, and department stores, to function properly amidst strict regulations regarding social distancing measures to contain Covid-19 in April 2020 relative to March 2020.

However, as the consumers were stuck to the walls of their homes, online retailing has performed really well, with demand for essential goods (household goods, grocery, etc.) particularly high during this time. And lately as the Australian economy has begun to slowly reopen, there has been an uptick in the discretionary spending, as per market analysts, as consumers start spending back on fashion, footwear and similar goods.

Some market participants are pricing in a V-shaped recovery while others speculating a U-shaped recovery in the Australia retail sector as the government support would eventually unwind.

Let us look at how the recent developments have impacted the following three ASX-listed retail giants in Australia.

Adairs Limited (ASX: ADH)

Adairs Limited is engaged in retailing home furnishings in Australia with stores across several store formats with a growing online presence. Known for providing on-trend fashion products, quality staples, strong value and superior instore customer service, the Group informed in early May 2020 that its online sales have gone up 221%, exceeding expectations since stores closed in response to COVID-19, during the 5-week store closure period up to 3 May 2020.

Although, Adairs total Australian sales were down 37% for the period, the Australian sales for its recently acquired subsidiary Mocka were up 151% on last year through this period. Adairs has also registered for and expects to be eligible for the JobKeeper Program in Australia. The Wage Subsidy in New Zealand has been received by all Adairs and Mocka employees.

The Company remained focused on serving customers and maximising sales through its digital channels while also taking decisive action to manage working capital and reduce costs across its business.

The Group stores started reopening on 7 May 2020, with all stores expected to reopen by end of June 2020. New in-store safety protocols and processes will apply across all stores including social distancing measures, the use of hand sanitisers, customer number limits and contactless payments. Stock density and layout within stores will also be reviewed to create more space and facilitate responsible social distancing practices.

Kogan.com Limited (ASX:KGN)

Kogan.com is a prominent consumer brand in Australia and is well-known for its price leadership via digital efficiency. The Group’s business portfolio includes Kogan Retail, Kogan Mobile, Kogan Energy, and Kogan Travel, among others.

Matt Blatt, a forerunner of Australia’s online furniture industry, was acquired in mid-May 2020 by Kogan.com at a purchase price of $ 4.4 million.

CEO Ruslan Kogan had informed that the Group would relaunch the Matt Blatt brand as an online-only offering, which would work as a springboard for further expanding Kogan.com’s reach in the furniture and homewares market. He also highlighted that the Kogan.com would benefit from Matt Blatt’s decades of industry expertise.

Under the June 2020 Business Update and in light of the current dynamic trading environment, the Group had reported that for the fourth quarter-to-date, April and May 2020 (4QTDFY20), its Active Customers increased to 2,074,000 as at 31 May 2020, with 126,000 Active Customers onboarded in the month of May alone.

For the concerned period, the Gross Sales grew by more than 100% across 4QTDFY20, the Gross Profit expanded by more than 130% across 4QTDFY20 and the Adjusted EBITDA grew by over 200% across. The Group closed the period with a cash at bank of $ 58.6 million as at 31 May 2020, with the debt facility drawn to $ 26.0 million.

Baby Bunting Group Limited (ASX: BBN)

Victoria, Australia-based Baby Bunting Group Limited (ASX: BBN) is a speciality baby goods seller offering prams, change tables. car seats, portable cots, cots, nursery furniture, toys, home safety, highchairs, and related products to support new and expectant parents.

In its most recent May 2020 Business update, the Group informed that all of its stores have been open throughout the challenging COVID-19 period, with proper social distancing and hygiene measures in place.

Since the Group’s last quarter update on 23 March 2020, Baby Bunting has recorded continued sales growth. For the second half from 30 December 2019 to 17 May 2020, the Group’s total sales grew 13.2% with a comparable store sales growth is 8.1%; and online sales being 17.3% of the total sales, representing growth of around 66% on the prior corresponding period (pcp).

Overall, Baby Bunting’s sales performance during such economic and health crisis, demonstrates the less discretionary nature of the baby products category with several new customers added during the past few months. The Group’s online channel particularly performed well as its online sales rose from 12.4% of total sales before 23 March 2020 to 22.4% of total sales in the following two-month period to 17 May 2020.

 


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