Spending levels are stabilising, Premier Investments moves to reopen stores

According to the latest card data by the Commonwealth Bank, the consumer spending is showing signs of recovery. Since mid-April to the first week of May, the spending data suggest a pick-up compared to early April.

Contactless payments and demand due to Mother’s Day have possibly resulted in better spending. For the week ended 8 May, it was noted that spending was 2% lower compared to same period last year. Spending on household and furnishing continues to be strong.

However, the consumer spending during the corresponding period of previous year was impacted due to rising unemployment, Federal Elections, falling house price and cash rate cut.

When unemployment is pegged to reach to double digit numbers over the next few months, the picture for consumer spending is going to be bleak. Since most of the Australians had been staying put at homes, the urge to shop is likely to be better since softer measures are making way into the economy.

Anzac Day and Mother’s Day shopping lists must have been somewhat incomplete as restrictions still apply in some of the states. Households are likely to flock to stores gradually as states open-up economy, but the million-dollar question is that – will they be spending like before.

Fiscal policymakers introduced range of measures to support the citizens in distress, including the ones that were possibly going to lose jobs because of the pandemic that has cushioned the blow.

Australian super funds were baffling as the Government also announced a scheme where the members in distress could access part of their super funds early. As per the Australia Prudential Regulation Authority (APRA), the super fund had paid $6.3 billion to the members with an average payment of around $7.6k by 3 May 2020.

Survey by the Australian Bureau Statistics (ABS), in the first week of April, suggest that 12% of the households were working more than usual and 24% were working less than usual.

Between early March and early April, people who had a job fell by 3 ppts. Majority of the households have been adhering to preventive health care measures floated by the Government, which could be one of the reasons why Australia has flattened the COVID-19 curve efficiently. Just over half of the Australians had scrapped their travel plans due to the pandemic.

Premier is opening stores gradually while online sales surge

Premier Investments Limited (ASX:PMV)

Due to health care measures floated by the Governments of jurisdiction where the Company operates, it has experienced 74% sales decline over the six weeks period to 6 May compared to the previous corresponding period, but online sales have surged by 99%.

Premier has implemented range of measures as a response for global pandemic that allowed the business to maintain a strong balance sheet and cement the long-term resilience of the business.

Peter Alexander, which is the largest brand of the company, has seen tremendous demand and broken weekly records during the shutdown period. The brand has seen online sales growth of 295%, and in the week ended 2 May 2020, the online sales from Australia were up by 18% against the total sales of last year.

The Company has invested in online technology, people and brand building over the past decade. It has enhanced distribution capacity and order fulfilment capabilities early in the last decade, and the EBIT margin of the online business is relatively higher than the group average.

Since 28 April, Premier’s NZ stores have been re-opening gradually and online sales have depicted strong traction since re-opening with massive online demand for Peter Alexander.

It noted that COVID-19 has accelerated the shift to online retailing. And, the business is well placed to capture growth from the online channels due to its past investments in the online infrastructure, which is owned by the Company.

Some of the stores of the business started trading since late April, and now the Company expects rest of its stores to open by 15 May 2020, excluding the stores in airports and CBD.

It is committed to maintain the COVID-19 guideline at the stores, including hygiene, social distancing, disinfecting protocols etc. The company would be opening all its stores in NZ starting from 14 May and necessary protocols would be adhered as required by the Government.

UK & Ireland business

PMV’s Smiggle stores are closed in the region since 21 March as the Government had imposed restriction. In the UK, the stores would open by the start of June, and in Ireland, the stores are expected to start trading again by 29 June.

Asian business

In Singapore, Hong Kong and Malaysia, the Smiggle stores of the Company continue to face disruptions. Its Singapore stores are expected to remain closed until at least 1^st June after trading was suspended in early April 2020. Malaysian business started trading on 4 May 2020, while Hong Kong stores continue operate normally.

Operating expenses

In ANZ, around 70% of the store leases of the Company are in holdover or expiring in 2020, and the Company has not paid any rent during the shutdown period across the globe.

It remains uncertain on the trading activity of the business over the course of future. The Company has qualified for the various wage schemes proposed by the Government across its markets.

Outlook & balance sheet

During the pandemic, the Company has proactively taken actions considering the long-term business implications, including standing down employees, deferring capital expenditure.

At the beginning of the month, the Company had cash of $256.2 million and access to undrawn facilities of $91.8 million. It is positioned to bring back the workforce as recovery kicks in. Besides, PMV is not in a position to provide meaningful update on the impact on earnings.

On 13 May 2020, PMV was trading at $15.12, down by 1.882% (at AEST 11:58 AM).