Handout to boost numbers for retailers

WHEN the reporting season kicks off next week, watch out for a nice little boost in the final-quarter sales figures for retail stocks including Woolworths, Coles, David Jones, Myer and Harvey Norman.

By InvestSMART · 3 Aug 2012

By InvestSMART ·
3 Aug 2012

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WHEN the reporting season kicks off next week, watch out for a nice little boost in the final-quarter sales figures for retail stocks including Woolworths, Coles, David Jones, Myer and Harvey Norman.

Woolworths and Coles released full-year sales results last week that give a taste of the benefits of the $2.8 billion government handout. But the latest Bureau of Statistics retail figures for June show sales rose more than expected due to the compensation package to families for the carbon tax.

Woolworths was keen to leave politics out of its result and attribute the rise to other factors, but it is hard to get past the fact that the fourth-quarter sales were up strongly, particularly in hotels, liquor and at Big W. In terms of hotel sales growth, comparable gaming sales were up 0.8 per cent in the fourth quarter, compared with negative 0.6 per cent in the third quarter and 1.3 per cent and 1.4 per cent in the first and second quarters.

The spending lift is also being felt online, with NAB's online retail sales index showing a recovery in June as the index rose to 189 points, up marginally from a previous 187.

In dollar terms, online spending grew about 19 per cent year-on-year in June, which was a significant strengthening compared with the previous two months - up 14 per cent in April and 15 per cent in May. Despite this recovery, growth in online retail sales remains lower than a year earlier, when it was up 32 per cent.

It means companies including Harvey Norman, David Jones and Myer will benefit from the government handouts, which started trickling out in late May.

But once the stimulus package runs out - in the next month or so - what then? Retail stocks have been battered in the past 18 months as consumer spending has declined in many areas and switched to online.

The fascination of the profit season will be not only the outlook statements for retail companies but also the whole economy. Many companies may avoid an outlook statement but investors should make it clear that is not good enough.

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Frequently Asked Questions about this Article…

Which retail companies are expected to show a final-quarter sales boost in the upcoming reporting season?

Everyday investors should watch major retailers including Woolworths, Coles, David Jones, Myer and Harvey Norman — the article says these stocks are likely to show a nice lift in final-quarter sales when the reporting season starts next week.

Why did June retail sales rise more than expected and what role did the government handout play?

June retail sales rose more than expected largely because a $2.8 billion government handout — compensation to families for the carbon tax — started being paid out. The article links that compensation package to stronger consumer spending in June.

How did Woolworths’ fourth-quarter performance reflect the spending boost?

Woolworths reported a strong fourth-quarter increase, with particularly solid results in hotels, liquor and at Big W. The company downplayed politics, but the article highlights that comparable gaming (hotel) sales were up 0.8% in Q4 versus negative growth in Q3 and modest gains earlier in the year.

What do the NAB online retail sales index and online spending figures tell investors about e‑commerce trends?

The NAB online retail sales index showed a recovery in June, rising to 189 points from 187. In dollar terms, online spending grew about 19% year‑on‑year in June (up from 14% in April and 15% in May), although that was still lower than the 32% growth seen a year earlier.

Which retailers besides supermarkets are likely to benefit directly from the government handout?

The article notes that department and electronics retailers such as Harvey Norman, David Jones and Myer are expected to benefit from the government handouts, which began trickling out in late May.

What happens to retail stocks when the stimulus package runs out?

The article warns that once the stimulus package runs out — in the next month or so — the temporary spending boost may fade. Retail stocks, already battered over the past 18 months by declining consumer spending and a shift to online, could face renewed pressure.

What should investors focus on during the profit‑reporting season for retail companies?

Investors should pay close attention not only to the retailers’ sales and profit numbers but also to their outlook statements and commentary on the broader economy. The article cautions that some companies may avoid giving an outlook, and that silence shouldn’t be treated as satisfactory.

How should everyday investors interpret a retailer not giving an outlook statement?

According to the article, if a retailer avoids an outlook statement, investors should be cautious: lack of forward guidance is not considered good enough. Seek clarity from management commentary and consider how much of recent sales strength was driven by one‑off stimulus rather than sustainable demand.