Why Retail Stocks Had Been So Popular Till Now? - WES, COL, JBH, SUL

The State of Australian Retail Sector

According to the Retail Trade data (in current prices) released by the Australian Bureau of Statistics (ABS), the Australian retail turnover fell 0.1% in seasonally adjusted terms in July 2019, following a rise of 0.4% in June 2019 and 0.1% in May 2019.

Industry-wise, the seasonally adjusted estimate for food retailing and household goods retailing improved by 0.3% and 0.1%, respectively. The seasonally adjusted estimate for cafes, restaurants and takeaway food services led the fall by 0.6%, while for clothing, footwear and personal accessory retailing turnover, the seasonally adjusted estimate was down 1.0% in July 2019.

There are various headwinds that the Australian retail sector has been exposed to such as reduced consumer confidence especially amongst the middle class and rise of the e-commerce driving growing preference towards online shopping. Besides, the brick and mortar retailers in Australia have been impacted by high rents and labour costs as well as biased workforce laws and regulations.

As consumer spending drives a major portion of the economy, understanding the trends in the retail sector are crucial. Moreover, the Australian retail sector employs over 1.3 million people.

Let’s look at the following four (4) large and popular retailers in Australia, their respective financial results and stock performance.

Wesfarmers Limited

Perth-based retail giant, Wesfarmers Limited (ASX: WES), established in 1914, has diverse business operations including coal mining and production, industrial and safety product distribution, gas processing and distribution, chemicals and fertilisers manufacturing, and others in Australia, New Zealand, United Kingdom, other regions, globally.

The Group reported a net profit after tax (NPAT) of $ 5.510 billion for the full year ended 30 June 2019 (FY19), which was a year of portfolio renewal for Wesfarmers. The reported profit includes post-tax significant items of $ 3.171 billion related to discontinued operations including gains on the demerger of Coles and disposals of Bengalla, Kmart Tyre and Auto Service (KTAS) and Quadrant Energy, which were completed during the first half of FY19. Overall, NPAT from continuing operations improved 13.5% to $ 1.940 billion. EBIT from continuing operations was up 7.4%, benefiting from continued growth in Bunnings Australia and New Zealand, Officeworks and Chemicals, Energy and Fertilisers (WesCEF).

The Group also declared a fully franked final dividend of $ 0.78 per share, payable 9 October 2019 (Record Date: 2 September 2019). Additionally, a special dividend of $ 1.00 per share was announced, resulting in total FY19 dividend of $ 2.78 per share.

Coles Group Limited

Leading retailer, Coles Group Limited (ASX: COL) has been operating for over 100 years in Australia and runs a network of more than 2,500 retail outlets across the country with its portfolio comprising leading brands in supermarkets, liquor, fuel, convenience and financial services, in addition to a 50% interest in Australia’s leading loyalty program, flybuys. Besides, Coles Online has annualised sales of ~ $ 1 billion, representing ~3% of Supermarket sales. Coles was demerged from Wesfarmers in November 2018 and is now an ASX 30 company.

The annual results for FY19 suggest that Coles Group delivered a solid performance in the face of a rapidly changing retail landscape and returned to profit growth in its core Supermarkets division, marking a great start to its four-year transformation program. The total sales revenue was at $ 35 billion, up 3.1% on FY18.

Supermarkets EBIT was up 2.2%, while Group EBIT was down 8.1%. Sales revenue from online sales amounted to $ 1.1 billion, improving by 30% compared to FY18.

The total fully franked dividend stands at 35.5 cents per share, comprising a final dividend of 24.0 cents per share and a special dividend of 11.5 cents per share for the period from 28 November 2018 to 30 June 2019.

JB Hi-Fi Limited

JB Hi-Fi Limited (ASX: JBH) is a retailer of music and electronic goods such as consumer electronics, car sound systems, music and DVDs with a network of stores located in different Australian states.

The company reported net profit after tax (NPAT) of $ 249.8 million, up 7.1% on $ 233.2 million in FY18, resulting from $ 7.1 billion of sales (FY18: $ 6.9 billion) for the full year ended 30 June 2019 (FY19). The total sales grew by 3.5% in FY19, while earnings per share (EPS) was up 7.1% to 217.4 cents per share (cps).

Segment wise, JB Hi-Fi Australia contributed $ 4.73 billion (up 4.1%) to total sales, with comparable sales up 2.8%. Additionally, online sales for the segment grew 23.0% to $ 258.0 million or 5.5% of total sales. Meanwhile, the total sales for JB Hi-Fi New Zealand increased 2% to NZ$ 236.2 million, with comparable sales registering an increase of 8.2% and online sales growing by 38.3% to NZ$ 13.3 million (5.6% of total sales). For the Good Guys segment, total sales were up 2.2% to $ 2.15 billion (comparable sales up 0.9%) and online sales improved by 3.7% to $1 30.9 million or 6.1% of total sales.

Super Retail Group Limited

Super Retail Group Limited (ASX:SUL) operates a network of retail stores throughout Australia, selling a wide range of automotive parts and accessories, tools, camping products, gardening and outdoor equipment and boating equipment.

On 15 August 2019, Super Retail Group announced NPAT attributable to owners of $ 139.3 million for the 52-week period ended 29 June 2019 (FY19). After adjusting for items not included in total segment NPAT, normalised net profit was $ 152.5 million. The total Group sales amounted to $ 2.71 billion for the period, reflecting a 5.4% increase on the prior corresponding period (PCP). The Group segment EBITDA stood at $ 314.7 million, an increase of 7.0% on PCP.

During the year, the Super Retail Group’s active loyalty club membership expanded to more than 6 million and investments undertaken to uplift the digital and omni-retail capabilities also underpinned an annual growth of 25% in the Group’s online sales. FY19 was another year of strong operating cashflow for the Group, as the Normalised EBITDA cash conversion of 94%, demonstrated the current focus on managing working capital and inventory to particularly improve the in-store availability of products.

The net debt decreased by $ 36.2 million to $ 386.7 million and normalised net debt/EBITDA decreased to 1.2 times. A final fully franked dividend of 28.5 cents per share contributed to the full year dividend of 50.0 cents per share.

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