A look at two retail sector players - WOW & HVN

Summary

• As per ABS latest report, retail trade rose by 16.3% in May 2020 in seasonally adjusted terms, while reporting the greatest monthly increment in over 38 years.
• WOW unveiled plans to automate its distribution centres that are expected to reduce substantial costs of the supply chain.
• HVN has embraced COVID-19, while witnessing an increased ~20% for FY’20 till 31 May 2020 in an unaudited preliminary PBT and non-controlling interests

Amidst COVID-19 outbreak, people were deprived of their day to day livelihood due to government imposed lockdown, leading to plummeting foot traffic at brick and motor stores. This fall was followed by a wave of stores closure by multiple retailers creating uncertainty for the market.

During the period, many retailers witnessed deteriorated cash flow. This situation alarmed the management team of companies to roll out strategies to cut down cost and preserve cash so as to emerge stronger amid COVID-19 pandemic.

As Australia started reopening the economy, a wave of positivity started spreading throughout the country. Also, businesses under various sectors started reviving.

Australian Bureau of Statistics (ABS) released statistics related to the retail industry on 19 June 2020. The statistics stated that Australian retail sector witnessed the largest M-o-M rise in 38 years, with surge of 16.3 per cent in the retail turnover in May 2020, as compared to a decrease of 17.7 per cent in April 2020, based on seasonally adjusted terms.

Did you watch; Retail and Banking

Let us now apprise ourselves with two retail players:

Woolworths Group Limited (ASX:WOW)

Australian retailer, WOW has unveiled its upcoming plans on 23 June 2020, to develop an automated distribution centre, as well as a semi-automated distribution centre at Moorebank Logistics Park in NSW. WOW expects construction completion by the end of calendar year 2023, while initial benefits likely to be actualised in FY 2025.

The Group is expected to invest in the range of AU$700 million - AU$780 million in technology and fitout of the two distribution centres through the next four years. Furthermore, WOW has signed a lease term of 20 years with Qube Holdings Limited (ASX:QUB).

Did you read; Qube to Partner with Woolworths for New Regional and National Distribution Centres

The Group intends to make the investment through its existing capital expenditure framework.

Interestingly, this investment in the automation of centres is anticipated to deliver a considerable reduction in the supply chain costs of the Group over time, further, delivering strong returns above WOW’s cost of capital.

The expected (pre-tax) significant items for H2 FY’20 stands at AU$460 million, and for FY’20 stands at AU$591 million including Endeavour Group transformation costs and employee remediation.

Did you watch; 100K Woolies Workers to receive Shares and Vouchers | ASX Market Update

WOW has noted a robust business performance during Q4’20 until 14 June 2020. Let us enrich ourselves with the trading update for the ten weeks ending 14 June.

• Australian Food and Endeavour Drinks sales witnessed an upsurge of 6% and 21.4%, respectively. NZ food sales and BIG W also reported robust growth of 15.1% and 27.8% respectively.

Furthermore, WOW expects the EBIT to be in the range of AU$3.2 billion and AU$3.25 billion.

Did you read; WOW Provides Supply Chain Update and FY20 Guidance

On 23 June 2020, WOW’s shares last traded at AU$36.38, down by 0.764 per cent as compared to previous close. The stock has a market cap of AU$46.3 billion. WOW has a P/E ratio of 18.040x and an annual dividend yield of 2.81 per cent.

Did you read; Uptick in May retail sales, Retail Players Under Spotlight

Harvey Norman Holdings Limited (ASX:HVN) is engaged in the business of homeware and consumer electrical. HVN operates through brands such as Harvey Norman^®, Domayne^® and Joyce Mayne^® in its portfolio.

On 23 June 2020, HVN unveiled its unaudited preliminary PBT (profit before tax) and non-controlling interests for FY’20 period till 31 May this year.

The profit before tax and non-controlling interest, excluding the AASB16 Leases net impact and net property revaluation adjustments noted an increase of 20% for FY’20 till 31 May 2020 in comparison with pcp.

HVN is expected to release its full FY20 results on 28 August 2020.

Did you read; COVID-19 Turns Boom for Harvey Norman, Profit up by 20%

HVN reported its strong business performance on 10 June 2020, as well as declared a special dividend; highlights for the same were as follows:

• HVN’s Australian Franchisees sales witnessed an increase of 17.5% during 2H’20 till 31 May 2020. Moreover, sales for FY’20 till 31 May 2020 noted an upsurge of 7.4% on pcp.
• Tasmania noted shut down of only two franchised complexes for two weeks, as the government of Tasmania ordered mandatory closure of the region.
• Other Australian franchised complexes stayed open during the crisis.
• HVN’s overseas operation sales were not satisfactory as majority of its stores across various geographies were forced remain shut.

Source: ASX Announcement

HVN on 10 June 2020 updated that its shareholders would be receiving a fully franked special dividend of 6.0¢ per share on 29 June 2020. The dividend will be paid to registered stakeholders at the close of business on 23 June 2020.

Did you read; US Census Bureau Provides Advance Monthly Sales For Retail And Food Services for May 2020

On 23 June 2020, HVN last traded at AU$3.62, with an increase of 4.928 per cent as compared to previous close. The stock has a market cap of AU$4.3 billion. HVN has a P/E ratio of 10.500x and an annual dividend yield of 9.57 per cent.