Lateral Gains through Supermarket and Retail Stocks

  • May 07, 2020 AEST
  • Team Kalkine
Lateral Gains through Supermarket and Retail Stocks

Several businesses across the world have revamped their strategies as they wrestle with the economic impacts of Covid-19. Meanwhile, grappling against the detrimental pandemic, the government seems to undertake a range of fiscal and monetary initiatives that could soften the blow. Yet, the choking impacts of the coronavirus augmented by the lockdown regulations can be felt by many businesses.

Amidst the ongoing struggle to evade the economic shock, the retail sector like evergreen coniferous spruce of Tundra stands undauntingly against the pandemic. At the same time, the fierce storm sends bone-chilling shivers among other businesses, many of which struggle for survival. 

High Turnover for Retail Sectors

While worrisome stories are woven around stifled business activities in many sectors, the pandemic-driven uncertainty is working as an elixir for the retail market. Retail Trade figures released by the Australian Bureau of Statistics (ABS) is narrating an optimistic tale from the retail perspectives. As per ABS, Australian retail turnover, seasonally adjusted at current prices rose to 8.5% during March 2020. Against the rise of 0.6% in February and the fall of 0.4% in January 2020, the March figures highlight significant swell in the business activities in the retail market scenario. 

ALSO READ: Strong Sales for Supermarkets in March; Australia to embrace softer restrictions soon

The uncertainty clouding the pandemic outburst drove the sales of the essential goods as the shoppers rushed to stockpile the necessary supplies. Driven by the exceedingly high demand, there was a turnover rise of 24.1% for food retailing, 16.6% for other retailing and 9.1% for the household goods.

At the same time, the social distancing, and restrictions on the face-to-face contact led to fall in turnover for the following- 22.9% for cafes, restaurants and takeaway food services, 22.6% for clothing, footwear and personal accessory retailing and 8.9% for department stores in seasonally adjusted terms in March 2020.

Ongoing Spat and Supermarkets Saving the Retail Landlords

The shutdown of business activities during the lockdown is translating into aggravated tensions between landlords and tenants over the rent payment. In the meantime, with the social distancing regulations still effective in the country, the discussion over rent continues between the commercial property owners and the retailers. 

The spat between the landlords and the retailers is intensifying as the tenants threatened to shut the businesses. Many merchants also indicated that they would not pay rents for the period of the lockdown. Amidst such times, the high turnover in the supermarkets is boding reasonably well for the supermarket and retail landlords.

Australian Government has declared a 6-month prohibition on rental expulsions. Meanwhile, for supporting the struggling landlords, a simultaneous six-month mortgage holiday for the real estate owners.

Premier Investments Limited (ASX:PMV) which operates several stores such as Peter Alexander, Just Jeans, etc. reportedly told its landlords that it would not pay rent for four weeks during which its stores remain closed as the country was under lockdown. Premier also intends to lay off its staffs as the period of no sale shakes the retailer. Similarly, many other retailers also refused to pay rent during the period of lockdown. 

Retaliating to the situation, Vicinity Centres (ASX:VCX) which is one of the retail property landlords has warned actions against the retail tenants who breach the commercial obligations of the lease. Meanwhile, the Company also asserted that it would not evict the retailers who are grappling with the covid-19 shutdown.

Likewise, Scentre Group (ASX:SCG) Chief Executive Peter Allen also stated that many businesses are keeping their stores shut despite the government’s shutdown measures only applicable to certain businesses like gyms, cinemas, etc. 

Commercial Property owners have seen a toilet roll and hand sanitiser-led rise in sales for its supermarket tenants which helped to offset the decline in demand at its discretionary stores. Meanwhile, the online delivery further carved out a way to bolster the growth of the retail sector

ALSO READ: Higher Consumer Spending Boosts ASX-listed Retail Stocks

The surged demands of the essential supplies were evident during March through long queues outside the supermarkets and the panic buying in the stores. The stock market reverberated the impact of the consumer rush with the stocks related to supermarkets realising substantial gains. The landlords would be able to realise rent from the anchor tenants whose revenue substantially increased during the lockdown. 

Gains in Retail Stocks

The reactions to the surged demand for the essential supplies were substantially felt on the stock market front with supermarket related stocks acknowledging high returns. 

In March alone Coles Group Limited (ASX: COL) realised the stock return of over 6.5% while in April, its stocks appreciated by the 2.31%. The stock on 7 May 2020 was trading at $15.26 per share (at AEST 11:11 AM). Meanwhile, the new supply deal agreement of Coles with Bubs Australia Limited (ASX:BUB) would add Bub’s cow milk formula in Coles’ 482 stores. Also, the third Quarter Sales results for Coles this year increased by 12.9% from 3Q19 to $9.2 billion. 

Woolworths Group Limited (ASX: WOW) third quarter (13 Weeks) sales results ending 5 April 2020 indicates robust sale growth from continuing operations to $16.5 billion, up by 10.7% from the previous reporting period.

 

Source: Company’s report

Source: Company’s report

 

Big W sales registered an increase of 9.5%. The Group’s revenue was significantly affected by online sales which grew by 34% compared to Q3 2019. In April, WOW stock rose by 1.85%. On 7 May, WOW was trading at $34.75, down by 1.054% (at AEST 11:28 AM).

Myer Holdings Limited (ASX: MYR) in its Covid-19 update indicated its plan to further focus on online sales. MYR stock rose by over 35% in the past one month, as on 6 May 2020. MYR was trading at $0.195 per share, up by 2.632% (at AEST 11:31 AM) on 7 May 2020. 

JB HI-FI Limited (ASX: JBH) Australia realised the comparable substantial gain of 11.3% in Q3 FY20 and 6.4% in Q3 FY20 YTD.

 

Source: Company’s report

  Source: Company’s report

 

The strong sales growth in April and Early May of JB HI-FI synchronise with the sales boost in Myer’s Good Guys which amidst Covid-19 continue to provide customers with the technology products and home appliances. JBH stock on 5 May 2020 gave 10.48% return while its stock on 6 May 2020 closed at $35.1, up by 3.387% intraday. However, on 7 May 2020, JHB was trading at $34.23, down by 2.479% (at AEST 11:36 AM).

ASIC Cautions Retail Investors

The sustainability of the profit in the current scenario remains a debatable topic. With the flattening covid-19 curve and a sharp decline in the infection rate, Australia is reopening. The market sentiments have nudged the ordinary investors to bet on the risky assets in the search for high gains. Meanwhile, Australian security regulator, ASIC reported a surge in the activity in the retail sector, which can be risky for the people amidst the uncertain times of impending financial crisis. 

CFDs reportedly recorded maximum losses as the customers of Australia’s 12 CFD providers recorded the total net loss of $234 million. CFDs are highly leveraged, which simultaneously increases chances for huge losses and gains. In times of market volatility, ASIC cautioned the investors against the day trading. 

Bottomline

The retail sector in the past two months has emerged to be the saviour for the economic downfall. Meanwhile, digital integration and online delivery have further amplified the gains for retail players. Driven by the business scenario, the supermarket related stocks have surged considerably in the past two months. However, the sustainability of the profits yet remains questionable amidst the volatile situation. ASIC has warned the investors to keep themselves away from the risky investments in the retail sector, which might blow off their savings. 

 


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