Year of woe is nearly over for ailing retailers

INVESTOR gloom about the perilous state of the retail sector led to shares in some of the country's leading operators hitting new lows for the year yesterday.

By InvestSMART · 30 Dec 2011

By InvestSMART ·
30 Dec 2011

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INVESTOR gloom about the perilous state of the retail sector led to shares in some of the country's leading operators hitting new lows for the year yesterday.

In a sign that 2011 can't end soon enough for the industry, department store chain Myer fell 2? to $1.93, while JB Hi-Fi, once the darling of the sector thanks to its focus on electronic games and personal electrical equipment, shed 15? to end the day at $11.20.

Notwithstanding an unlikely recovery today, they and the rest of the big retailers including David Jones, Premier Investments - the group behind Portmans, Just Jeans and Dotti - Harvey Norman and Kathmandu will finish the year at a much lower level than at the start.

David Jones was unchanged yesterday at $2.38 but is still at the bottom of its 2011 trading range, and has halved in value since touching $4.87 in January. Myer has fared almost as badly, dropping 49 per cent since February when it was trading at $3.75.

The tough trading conditions arising from lower consumer spending and the growing trend towards online shopping has also hurt mainstream retailers such as Harvey Norman, which is down $1.37 since its high for the year of $3.22 in January. It fell 0.5? to close at $1.81 yesterday, while JB Hi-Fi is down almost $9 since the shares touched $20.13 at the end of March.

As for Kathmandu, which had managed to buck the downward trend until November before putting out a profit warning, its shares have plunged from $2.02 to $1.31 in just six weeks.

There has been little respite for Solomon Lew's Premier Investments in the past fortnight as its stock has followed the ASX retail index down. Premier shed another 5? yesterday to close at $4.77, almost $2 lower than its high for the year in April.

The sector's poor performance has meant that four retailers appeared in a league table of stocks striking new lows for 2011.

The All Ordinaries index closed 18.6 points lower at 4123.1 yesterday, while the benchmark S&P/ASX200 fell 17.7 points to 4071.1. The All Ords is down 14.9 per cent so far in 2011.

It was the second successive day of falls since the market resumed trading after the Christmas break, as doubts resurfaced over the European debt crisis and a rush to the US dollar put downward pressure on commodity prices.

Trading volumes remained low yesterday, just 803 million shares changing hands, about a third of the daily average. Leading the fall were the miners after commodities fell overnight on Wednesday.

But some investors remain upbeat about the prospects for Australian equities in 2012.

The Bell Potter senior adviser Stuart Smith said the market remained hugely undervalued at its current level.

"You have the despondency in the market on one hand that is providing an opportunity on the other," Mr Smith said.

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Innovation is the key to survival

Adele Ferguson, Page 15

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Frequently Asked Questions about this Article…

Why did Australian retail stocks hit new lows in 2011?

Retail shares fell largely because of weaker consumer spending and the growing shift to online shopping, which squeezed traditional bricks‑and‑mortar sales. Broader market pressures — renewed doubts over the European debt crisis, a rush to the US dollar that pushed commodity prices down, and low trading volumes — also weighed on investor sentiment.

Which major retailers were hardest hit and what were their recent share price moves?

Several big names fell to year lows in 2011: Myer fell to about $1.93 (down roughly 2% that day and down about 49% since February), JB Hi‑Fi fell to $11.20 (shedding about 15% on the day and down almost $9 since late March), David Jones was at $2.38 (about half its January level of $4.87), Harvey Norman closed around $1.81 (about $1.37 below its January high of $3.22), Kathmandu plunged from $2.02 to $1.31 after issuing a profit warning, and Premier Investments closed at $4.77 after losing another ~5% and sitting almost $2 below its April high.

How did the main Australian indexes perform and what does that mean for investors?

The All Ordinaries closed 18.6 points lower at 4,123.1 and the S&P/ASX200 fell 17.7 points to 4,071.1. The All Ords was down about 14.9% year‑to‑date in 2011, illustrating that the market — and particularly the retail sector — was under significant pressure for the year.

What role did trading volumes and commodity prices play in the market sell‑off?

Trading volumes were light (only about 803 million shares changed hands, roughly a third of the daily average), which can amplify price moves. Commodities fell after a rush to the US dollar and renewed European debt concerns, hitting miners and contributing to overall market weakness that indirectly affected retail stocks.

Are there any investor views that see opportunity amid the retail downturn?

Yes. Bell Potter senior adviser Stuart Smith said the market remained "hugely undervalued" and that current despondency could present an opportunity. The article notes that some investors were optimistic about prospects for Australian equities heading into 2012 despite the short‑term pain.

What company‑specific warning signs did the article highlight for everyday investors?

The article called out Kathmandu for issuing a profit warning, after which its shares plunged from $2.02 to $1.31 in six weeks. More broadly, the sector‑wide declines and repeated new lows for several retailers were highlighted as warning signs of tough trading conditions.

How important is innovation for retail companies trying to survive this downturn?

The article stresses that innovation is critical to survival in a tough retail environment. Industry commentary suggested that retailers need to adapt — for example by responding to online shopping trends and changing consumer behaviour — if they want to recover.

Should everyday investors treat the sell‑off in retail stocks as a buying opportunity?

The article doesn’t provide investment advice, but it reports that some market participants view the weakness as an opportunity because valuations looked low. Bell Potter’s Stuart Smith said the market was "hugely undervalued," indicating some investors were upbeat about potential gains in 2012 despite ongoing risks.