Panic-Buying - Is Another Leap Coming-In for These 2 Popular Supermarket Stocks

  • Jul 01, 2020 AEST
  • Team Kalkine
Panic-Buying - Is Another Leap Coming-In for These 2 Popular Supermarket Stocks

Summary

  • Victoria is witnessing growing number of new infections in some parts, while most of the states have fared better over the recent weeks.
  • Preliminary data indicates that retail sales have bounced back with the largest-ever monthly increase recorded in May.
  • Household survey points that Australians are inclined to spend on travel and recreation, as restrictions continue to be eased.

Coronavirus cases in Victoria are signalling a second wave, as numbers continue to increase. It is being reported that most of the cases in the state are due to community transmission. Queensland’s new infections have been muted over the recent weeks.

Victoria, which had most long-lasting and stricter restrictions in place, is struggling to avoid transmission of the virus. Health officials of Western Australia have said that Victoria’s rising cases would make a case for further extension of interstate travel restrictions.

Younger Australians are posing the risk of spreading the disease, as young people generally have mild symptoms of COVID-19. Victoria has been working on its toes to minimise the number of new infections that have the potential to instigate a country-wide second wave.

Victoria has also moved with the closure of several schools. The state government has increased testing in areas where new cases are being detected. Most of the new infections in Victoria are linked to existing outbreaks.

Globally, some countries are still struggling with the first wave of infection, as cases continue to rise, especially in Brazil and India. In the US, there are signs of a second wave in some states, with increasing number of new cases.

Do Read: World's Battle Against COVID-19 Seems Far From Over

It will be crucial for authorities to prevent spread from the places that are showing an increasing level of virus transmission. Also, testing will need to be ramped up to trace as many as potential infections due to community transmission.

ABS Household Survey – 6th Edition

Recently, the Australian Bureau of Statistics (ABS) released results of the sixth household survey on the COVID-19 impact. People who had decreased their spending due to restrictions are inclined to spend as restrictions ease:

  • 74% on recreation
  • 74% on eating out
  • 73% on private transport
  • 70% on personal care
  • 66% on childcare
  • 55% on public transport

As restrictions ease, 55% of Australians are planning to go for a domestic vacation, while 29% want to have an international holiday. Majority of households have, would be or are going to send their kids to childcare centres or schools, shopping at stores, workplace, and beauty or hair salon.

In the four weeks to mid-June, 66% of the households surveyed reported that household finances have remained unchanged. Around 94% of Australians believe that they are in a position to pay bills for the next three months.

Around one-fifth of the respondents noted a deterioration in household finances. Households that were receiving the JobKeeper payment; close to half of those households were receiving less than usual pay, one-fifth of households were receiving more, and 33% were receiving the same amount of pay.

Source: ABS

Over 61% of Australians aged over 18 had working paid hours in mid-June. Also, the proportion of respondents who had a job but not working paid hours steadily decreased from 7.6% in April to 3.5% in mid-June.

Retail Sales Bounced Back in May

Preliminary retail sales data of May suggests a surge from April, as spending surged from a low base in April, according to ABS. In May, retail sales increased 16.3% in seasonally adjusted terms, which is the largest ever gain in the data of the series.

This largest-ever increase in retail turnover comes after a largest-ever decrease in April, when retail sales were down 17.7% in seasonally adjusted terms. Prelim data shows that spending increased in every segment, but the percentage was large in segments that recorded low levels in April.

Although spending is well below the levels of May 2019, there were large increases in footwear, clothing, personal accessory, cafes, restaurants, and takeaway food services, as restrictions were eased in May.

Liquor sales and food retailing also rose, while there were large rises in household goods, including home improvement, home offices, home entertainment and furniture.

Good Read: 5 Fortunate Retail Businesses Amid COVID-19 - WES, COL, WOW, CCX, KGN

Coles Group Limited (ASX:COL)

Last month, Coles notified about a class action filed in the Federal Court of Australia related to manager remuneration in supermarkets. The company is undertaking a review of remuneration paid to award covered salary team members, which doesn’t include employees covered in enterprise agreements that comprise 90% of Coles’ workforce.

In the March quarter ended 29 March 2020, the company recorded total comparable sales growth of 12.4%, of which supermarkets grew 13.1%, Liquor grew 7.2%, and Express grew 4.3%.

During the initial weeks of trading in 4Q, the company noted sales in supermarkets were tracking back to the levels seen during the pre-COVID period. Easter trading period was subdued this year due to restrictions.

Liquor sales are expected to remain higher due to closure of out-of-home channels like bars and pubs. But Coles was conducting a range review, which would impact EBIT in the segment.

Coles was also expecting an EBIT loss, excluding AASB 16, in Express due to restrictions. Gross operating capital expenditure was anticipated between $750 million and $850 million for the year.

On 1 July 2020 (AEST 12:23 PM), COL was trading at $17.010, down by 0.932% from the previous close.

Woolworths Group Limited (ASX:WOW)

On 23 June, Woolworths Group reported a trading update and significant items for FY20. In Q4 to 14 June, trading of the group was strong except for the hotel business, which was closed until May.

Source: Company's report

In Q4, incremental costs related to operating costs, store hygiene, social distancing and supply chain are expected to be on a higher end of the $220 million to $275 million range. In FY20, after AASB 16 and before significant items, the group expects to report EBIT between $3.2 billion and $3.25 billion.

The group has also revealed its investments in regional distribution centres in Sydney. It would invest between $700 million and $780 million over the next four years and has executed a 20-year lease with the developer.

Significant items

The group expects to incur $460 million in significant items in the second half of the year. Considering $131 million in the first half, total for the full year is $591 million. In first-half, costs were incurred on salaried team member remediation and Endeavour Group.

In the second half, development of two new distribution centres and closure of existing three would result in an expense of $176 million. It would incur $179 million related to Endeavour Group, primarily on stamp duty, consultancy, advisory, internal resources and IT costs.

The company would also incur $105 million related to the remediation of salaried team members in the second-half. Woolworths has also identified payment shortfalls in its ALH Hotels business. The company continues to review the payment shortfalls across the group. Currently, the group is estimating a total cost of around $390 million, excluding interest and costs.

On 1 July 2020 (AEST 12:24 PM), WOW was trading at $37.090, down by 0.51% from the previous close.  

Is There Any Chance of Widespread Panic Buying?

Chances of high intensity panic buying like we experienced in March are very low since new infections are limited to some places. Of course, there could be panic buying in areas that are tracing new cases, which is also evident in some places.

We may need a country-wide lockdown to reach the level of sales recorded by supermarkets in March. As most of the states are doing extremely well with the containment efforts, probability of a country-wide lockdown remains lower at this point of time.

 


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