Uptick in May retail sales, Retail Players Under Spotlight

Summary

  • Uptrend in the May retail driven by lockdown relaxations and increase in winter apparel sales as witnessed by enhanced consumer footfall in Kmart and Target stores in recent weeks.
  • Retail figures seem to be supporting positive economic prospects as also evident from RBA’s June Meet and Goldman Sachs’ better-than-expected growth predictions.
  • The second wave of infection and time taken by the travel sector to revive significantly would predominantly govern future retail figures and Australian economic recovery.

The easing of lockdown restrictions seems to reverberate positive hopes in economic reboot, indicating that consumer activity is reviving its normalcy. May 2020 Retail trade figures released by Australian Bureau of Statistics on 19 June reported that seasonally adjusted Australian retail turnover surged by 16.3 per cent in May 2020, the largest month-on-month (MoM) rise in 38 years witnessed by the Australian retail sector.

In April 2020, owing to lockdown and curb in social movements, the Retail Trade witnessed most significant seasonally adjusted slump of 17.7%.

Compared to May 2019, previous month saw a rise in turnover of 5.3%. The industries which witnessed substantially contracted trade in April 2020 recorded boost the next month, signifying growing consumer activities.

Food Retailing, restaurants and cafes, takeaway food options, clothing, footwear, etc. were some of the significant areas which saw substantial slump in sales during April 2020.

However, in May 2020 as business operations were relaxed, there was a considerable rise in demand for clothing, footwear and personal accessory along with cafes, restaurants and takeaway services. Although, sales in these segments remained lower when compared to May 2019.

Home Goods Retailing also witnessed tailwinds following the lifting of lockdown restrictions. The increase in sale of home-related products such as furniture, home improvement and entertainment denote growing consumer confidence in the country. Meanwhile, substantial rise in spending related to Home Office indicates how remote work trend has picked up as consumers are engaged in improving their home office space.

Meanwhile, food retailing which remained on investor’s radar with panic buying trend continued to witness growth as additional food and beverages were consumed by people who chose to stay at home amidst social distancing focus. Sales of liquor also maintained its positive upbeat with the bars and clubs being closed.

ALSO READ: Will Retail Stocks Benefit from The Trend in Retail Sales?

Depending upon different Australian states, the first few days of May 2020 coincided with the lockdown restrictions. Nevertheless, the rising sales figures connote with the stimulating momentum in May 2020, which could bring recovery prospects for the country.

Retail Sales Growth Implications for Economic Reboot

The upbeat retail trend is looked at favourably as initial recovery sign for the economy which is surrounded by upheavals and apprehensions.

Australia, in the March 2020 quarter witnessed GDP contraction of 0.3 per cent, while more severe impact will be evident from June quarter representing strict lockdown period of April. Australian Treasurer Josh Frydenberg has already affirmed that the country is already battling its first recession. impacted by Bushfire and initial phases of coronavirus.

While Mr Frydenberg hinted that June quarter could see further economic downturns, he indicated that Australia is better stationed compared to other nations where GDP shrinkage was much severe. OECD has projected that Australian GDP in the year 2020 would fall by 5% before recovering by 4% in 2021.

Goldman Sachs, pivoting its predictions optimistically for near-term Australian economic performance, now expects Q2 QoQ contraction in GDP by 7.5%, followed by a rebound of 4.5% in Q3.

Positive retail trend in May aligns with the statements from RBA’s June meeting, which indicated that the economic impact on Australia would be “shallower than earlier expected”.

Despite a significant rise in sales figure during May on a month-on-month basis, the unemployment rate in the country escalated from 6.4% in April 2020 to 7.1 per cent in May 2020. It remains noteworthy to witness how implications of growing momentum in the Australian retail space could affect the job scenario in Australia.

ALSO READ: Jobs and Housing Scenario: Any Bright Spots?

Australian dollar rate (AUD/USD), which recorded consecutive declines for past three successive days, witnessed a slightly positive trend on 19 June 2020 as AUD traded at around 0.685 USD (at 2:57 PM AEST).

The optimistic figures also seem to slightly boost investors’ confidence in Australian stock market, with S&P/ASX 200 closing at 5942.6, up 0.10%.

Glimpse at Retail Stocks

Nick Scali Limited (ASX: NCK) and Adairs Ltd (ASX: ADH) grabbed major headlines, soaring 19.7% and 10.6%, respectively backed by impressive trading updates. ADH reported uptick in online and store network sales (since reopening of stores), while it expects FY20 to be in the range of $385-390 million.

NCK grabbed traction, with its decision to prepone the dividend payment date to 29 June, earlier delayed till 2 October 2020 owing to COVID impact. While, NCK reported 4Q20QTD sales growth of 20.4%, it expects FY20 revenue in the range of $260-263 million and underlying NPAT in the range of $39-40 million.

Lets look at other popular retail stocks:

Wesfarmers Limited (ASX: WES)

Wesfarmers recorded an increase in sales momentum in Kmart and Target stores in recent weeks as consumer’s demand seems to be recovering, especially concerning winter apparel shopping.

Amidst lockdown, as people spend considerable time in their homes relaxing and working, Bunnings and Officeworks witnessed significant growth in sales. On the year-to-date basis for May 2020 end, sales of Bunnings grew by 11.3% while that of Officeworks rose by 19.3%.

A significant increase of 89% in its online retail sales on the year-to-date basis for May 2020 end highlights growing e-commerce capabilities for the group. The company expects moderate changes in the sales mix, which would moderate the earning growth in the second half of the year.

The shares of WES last traded $43.140 on 19 June 2020 and have given a one-month return of 11.53%.

Woolworths Group Limited (ASX: WOW)

Australian retailer, Woolworths Group Limited saw a substantial rise of 10.7% in the group’s sale from continuing operations during the March 2020 quarter. At the same time, radical adoption of e-commerce and online delivery amidst lockdown has altogether accentuated the group’s online sales which rose by 34% to $817 million. While, WOW’s hotel business recorded downfall in the activities.

The group also saw incremental operating costs with a rise in team wages across the company’s stores, supply chain and eCommerce for meeting enhanced demand. The incurred cost also soared with an increasing focus on cleaning, security and PPE equipment. The company expects that the costs would continue in Q4.

WOW stock traded at $ 36.550 on 19 June 2020. The stock, in the past one month, has generated a return of 3.74%, while the YTD return has been noted at 0.83%.

While the growth in the Australian retail sales figures fosters a silver lining towards Australian recovery, the question still lingers if the rise in the retail figures could offset the decline in sales in travel, hospitality, and other industries. At the same time, the potential second wave of infection in China is raising alarms for Australia.

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