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Resilient Retail Space in the Wake of Coronavirus? Lens on HVN, JBH

  • May 09, 2020 03:15 PM AEST
  • Team Kalkine
Resilient Retail Space in the Wake of Coronavirus? Lens on HVN, JBH

Retail sector has been on radar amidst the current coronavirus induced health crisis, while recently released ABS results indicate better positioning of the sector in March 2020 at the back of buyers rushing to stockpile the essential goods in panic during the strict lockdown phase.

Australia’s retail industry, perhaps one of the leading employers of the nation, accounted for 4.8 per cent of real gross value added during 2017-18, as per the Australian Government’s Benchmark Report 2019. This makes it all the more essential to access the impact of corona wave on the sector.

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

As indicated by the March 2020 figures released by ABS, the March retail turnover soared 8.5 per cent (seasonally adjusted) on M-o-M basis. There was a rise of 0.6 per cent in February 2020, as against the fall of 0.4 per cent in January 2020.

Source: ABS

Besides, varied sub-segments within retail space recorded different impact on the retail turnover, with considerable uptick seen across:

  • Food retailing (+24.1 per cent),
  • Other retailing (+16.6 per cent), and
  • Household goods retailing (+ 9.1 per cent).

On the other hand, following industries noted dip in their retail turnover:

  • Restaurants, cafes, and takeaway food services (-22.9 per cent),
  • Footwear, clothing, and personal accessory retailing (-22.6 per cent), and
  • Department stores (-8.9 per cent).

Below is the state-wise results:

Northern Territory (+11.6%), Western Australia (+9.9%), the Australian Capital Territory (+9.5%), South Australia (+9.4%), Tasmania (+8.9%), Queensland (+8.8%), New South Wales (+8.0%), and Victoria (+7.7%).

Digital and Cross- Functional Shift

Even before COVID-19, the retail industry was turning its gear towards the digital platform, however the pace was slow as some businesses were scared to adopt the digitalization concept in their existing systems. While, a paradigm shift has been observed now in the industrial landscape and buyers’ mindsets.The customers seem to have migrated from brick and mortar to online sales during the time of coronavirus.

In Australia, online retail turnover increased significantly by 23 per cent in March 2020 over the previous month. Whereas, in February and January 2020, the online turnover had diminished by 2 per cent and 26 per cent, respectively.

March 2020 recorded 2,069 million total online retail trade; out of which, multi-channel online retail trade was $1,300 million and pure-play online retail trade was $769 million.

The transition of traditional way of doing business to a more interactive and efficient way with online business is a result of the disruption caused by coronavirus.

Interestingly, it is noted that retailers have adopted a cross-functional shift in response to the uncertain conditions due to COVID-19, while businesses around the world have understood that collaborations during COVID-19 situation will be a winning factor for them.

For instance, McDonald’s in Australia had started providing grocery via their drive-through outlets.

With exciting latest picturesque for the majority of the retail segment, Let us have a look at two retail stores of Australia - HVN, JBH.

Harvey Norman Holdings Limited (ASX:HVN)

HVN is into the business of selling homewares and consumer electricals with 95 offshore Harvey Norman® company-operated stores around the world. Three prominent brand names of HVN include Domayne®, Harvey Norman®, and Joyce Mayne®.

HVN released its latest financials for the six-month period ended 31 December 2019, with following key financial results:

  • Company operated sales revenue of $1.24 billion, increase of 5.4 percent on pcp basis.
  • EBITDA was up by 15.7 per cent or $60.06 million, to $443.43 million.
  • PBT and PAT increased by 2.4 per cent and 3 per cent, respectively.
  • Net assets grew by 4.2 per cent on pcp basis, to $3.3 billion.

As on 2 April 2020, HVN released an update on COVID-19 along with its decision on dividend distribution. The Company had withdrawn its fully- franked interim dividend of 12 cps, considering this as a prudent approach towards the uncertain COVID-19 scenario. As a result, Harvey is expected to retain $149.5 million of cash in the business.

HVN released following noteworthy updates:

  • In Australia, all online franchisee services, including deliveries and click & collect are available.
  • Moreover, all its franchisee stores based out in Australia are operational.
  • For three months (April to June 2020), a cut of 20 per cent in the salaries is agreed by the Company’s board and management.

Stock performance: On 08 May 2020, HVN shares were trading at $3.030, an increase of 6.7 per cent compared to the previous close. The stock has generated a positive 1-month return of 10.18 per cent. HVN has a P/E ratio of 9.220x and an annual dividend yield of 10.89 per cent.

JB Hi-Fi Limited (ASX:JBH)

JBH operates JB Hi-Fi Group, which brings together two retail brands of Australia, namely The Good Guys and JB Hi-Fi. The Group offers a wide range of whitegoods, consumer electronics, home entertainment, and appliances. JB Hi-Fi Solutions business of the Company provides consulting and information technology services.

On 6 May 2020, the Company notified the market about the impact of coronavirus on its Australia and New Zealand businesses and sales update for Q3 FY 2020.

  • The retail stores, commercial and online businesses in Australia are operational.
  • To restrict the foot traffic at airports and CBD locations, JB HI-FI Australia business had shut seven stores in CBD locations and three airport stores.
  • Due to the probable increase in government restrictions, the company witnessed accelerated sales in late March.

Source: Company's announcements

  • JBH mentioned that The Good Guys offers customers with the technology products and home appliances which is required for learning, working, and entertainment while being at home.
  • JBH withdrew guidance for FY 2020, considering the uncertain and unpredictable situation because of coronavirus.

Stock performance: On 08 May 2020, JBH shares were trading at $35.26, up by 3.73 per cent compared to the previous close. The stock has generated a positive 1-month return of 11.5 per cent. JBH has a P/E ratio of 15.56x and an annual dividend yield of 4.25 per cent.

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