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Since COVID-19 has grappled most of the world, businesses are facing demand as well as supply shocks. Discretionary retailers have been forced to close the stores, as these retailers do not sell essential items, which is causing a significant dent to cash flows of the businesses.
As cash flows have deteriorated, management of the businesses is up to the mighty task of preserving cash to sustain the business amid COVID-19 crisis. They have been undertaking measures to reduce cash outflows, including cancelling/deferring dividends, standing down employees, and cutting on non-essential spending.
Businesses are engaging with their financiers to alter financing terms for the existing debt, including increasing tenure of loans and size of the facility, which would provide headroom in cash preservation initiatives undertaken by them.
Let’s look into some Australian retail businesses.
Harvey Norman Holdings Limited (ASX:HVN)
Recently, Harvey Norman acknowledged the uncertainty driven by COVID-19 and its potential impact on trading. Consequently, the Board decided to revoke the interim dividend payment of 12 cents per share for FY20.
The move would retrieve $149.5 million to the retailer, and the Board is of theview that preserving cash amid this environment appears prudent to protect the shareholder value. HVN noted that all Australian franchise as well as click & collect services in Australia continue to operate.
Chairman, CEO and CFO of the Company have decided to take a pay cut of 20% over the next three months. Also, Non-Executive Directors of HVN have voluntarily agreed for a 20% reduction in directors’ fees for a three-month duration (April to June 2020).
In March, excluding commercial sales, the Company reported impact of COVID-19 on its store sales in the Company-operated wholly owned stores in NZ, Ireland,Northern Ireland and Croatia. HVN reported numbers from majority-owned stores in Singapore and Malaysia as well as independent franchised complex - Harvey Norman ®, Domayne ® and Joyce Mayne®.
Between 1st March 2020 and 17th March 2020, in local currency terms, total sales of Australian franchises went up 9.1%, NZ was up by 12.9%, Croatia was up by 1%, Ireland was up by 53%, Northern Ireland was down by 12.4%, Singapore was down by 1%, and Malaysia was up by 19.5, all over the pcp.
On 9 April 2020 (AEST 02:55 PM), HVN was trading at $2.790, up by 1.455% from the previous close.
JB Hi-Fi Limited (ASX:JBH)
On 26 March 2020, the group unveiled COVID-19 impact on its NZ business, reporting that 14 stores in NZ as well as online operations are closed for a period of minimum 4 weeks. This step was taken after the NZ Government imposed alert level 4 restrictions, limiting all ‘non-essential services’.
The Company stated that the NZ business does not constitute a material contribution to the Group, and FY19 sales were NZD236 million, equating around 3% of the Group’s total annual sales with an EBIT loss of $1.9 million.
A few days earlier, JBH had reported the impact of COVID-19 on its businesses. The Company reported to have been undertaking additional hygiene measures in its stores, encouraging cashless transactions, social distancing measures, restricted travel and meeting, and flexible working hours.
Between 1 January and 22 March, total sales growth for The Good Guys was 10.4% with comp sales growth of 10.4%, total sales growth for JB HI-FI Australia was 9.1% with comp sales growth of 8.8% andtotal sales growth and comp sales growth for JB HI-FI New Zealand was down 2% each.
It was noted that the business saw strong momentum in Australia during the March quarter with robust sales in recent weeks as customers bought essential items to prepare for COVID-19. JBH witnessed strong sales of home appliances for food storage, in addition to products that enable WFH (working from home) and learning & communication.
However, COVID-19 has induced a high level of uncertainty, thus the Company withdrew its guidance for the FY20 financial year. The balance sheet of JBH remains strong with significant headroom in financial covenants.
On 9 April 2020 (AEST 03:04 PM), JBH was trading at $33.580, up by 6.165% from the previous close.
Accent Group Limited (ASX:AX1)
On 25 March, Accent Group reported COVID-19 business update, highlighting that the Company has closely monitored the Government advice as well as directions from healthcare authorities.
Accent closed its stores on 27 March for a period of 4 weeks, and the Company stood down its employees for the same period. However, the group would continue trade through its websites and wholesale business.
Earlier in March, the Company reported that the impact of COVID-19 has been visible, resulting in an uncertain environment. There was a significant impact on consumer demand since mid-February with significantly lower like-for-like sales.
Accent also reported some delays in deliveries, with well positioned inventory level and no material impacts confirmed by suppliers. Given the lower sales due to COVID-19, the Company has withdrawn its guidance for profit growth in the second half, while it does not expect to deliver profit growth in FY20.
On 9 April 2020 (AEST 03:09 PM), AX1 was trading at $0.965, up by 3.763% from the previous close.
Lovisa Holdings Limited (ASX:LOV)
On 26 March, the Company reported that its stores in Australia, New Zealand, and South Africa are temporarily closed, with the stores in France, Spain, Malaysia, US and the UK closed earlier.
Although Singapore was the only market continuing to trade, the Company was not sure about the re-opening of all the stores.
LOV has taken steps to mitigate the impact of COVID-19, including standing down employees and reduction in support team headcounts.Also, the Company deferred the dividend payment, which was announced in February for a period of 6 months.
It also received approval from the financier of the business with respect to an increase in facility limits and extension for an additional 3-year term.
Earlier in March, the Company had reported that its suppliers and distribution hub in China were starting to trade normal, but it is experiencing delays in freight movements out of China.
On 9 April 2020 (AEST 03:12 PM), LOV was trading at $6.440, up by 22.901% from the previous close.
