By Simon Evans
Department store group Myer is expected to continue a solid recovery on the ASX in 2023 even though the retail sector is set to cool as cost-of-living increases crimp spending by households, after it posted its strongest sales in almost two decades.
Shoppers spent up big on categories such as fashion, footwear and accessories to attend events and functions as Australians began going out again with gusto, pushing Myer shares up 5.3 per cent to their highest level since mid-2017.
Chief executive John King said sales for the five months to December 31 jumped 24.8 per cent from the year-earlier period, and were the best for that period since 2004 measured against comparable years in the group’s current internal financial systems.
“The results, which reflect our best sales on record for the first five months, are particularly pleasing and more importantly also reflect improved profitability within the business,” Mr King said.
Wilson Asset Management portfolio manager Oscar Oberg said the Myer turnaround continued to accelerate and investors had simply marked it down too far in previous months on expectations the retail sector would be hit hard by rising rates, falling house prices and inflation.
“I think it’s going to be a good performer this year,” Mr Oberg said.
A clamp on spending by households was still looming, but it may not be as severe as many experts had been predicting with unemployment rates remaining low. “There’s no doubt it is coming,” he said.
Mr King said Myer was cautious about the broader economy as cost-of-living increases and interest rate rises became a bigger factor, but was still confident about the momentum continuing.
“As with most retailers, we remain cautious on the macroeconomic environment for the remainder of the calendar year,” he said.
But he said the group was still confident “in the continuing momentum we have” as it executed its strategy of putting customers first.
Analysts say categories such as womenswear, footwear and fashion accessories have been strong in retail as events on the social calendar were held again after many were cancelled during the first years of the pandemic. Beauty products, homewares, and appliances such as coffee machines and juicers have also been strong.
Australia’s biggest department store chain said trading during its stocktake sale, which is still underway, was outperforming the previous year when the omicron variant caused a substantial downturn to foot traffic in bricks-and-mortar outlets.
First-half net profit – July 31 to January 28 – is expected to total between $61 million and $66 million, up at least 89 per cent on the previous period, Myer’s trading update to the ASX said.
Profits are also projected to be significantly higher than before the pandemic, up between 54 per cent and 67 per cent on the first half of 2019-20.
Online sales fall
Online sales in August-December fell 9.4 per cent from a year ago, an indication of how strong online sales were in 2021 when stores were closed because of COVID-19 and customers were cautious to return to stores upon reopening. Online sales account for 20.1 per cent of total sales.
The change in shopper behaviour was also apparent at online retailer Kogan.com, which on Tuesday announced that sales for the December half were down 32.5 per cent to $471 million compared with a year ago when it was a big beneficiary of COVID restrictions and lockdowns.
Chief executive Ruslan Kogan said inventory levels at the group had been cut hard to $98.3 million, from $160 million at June 30. He believes Kogan.com’s value proposition will help it in the next few months as cost-of-living increases hit households. “The impacts of inflation and interest rates have begun to affect the lives of Australians and New Zealanders,” Mr Kogan said.
In another comparison with the pre-COVID-19 landscape, total sales at Myer jumped 18.9 per cent on the first half of 2020, and climbed 14.3 per cent on the same period in 2019.
Department store total sales for the six weeks ended December 24 rose 8.7 per cent higher from the year-earlier period. Retail billionaire Solomon Lew’s Premier Investments vehicle holds 22.9 per cent of Myer, and Mr Lew won out in a lengthy campaign late last year to put former Myer Grace Bros managing director Terry McCartney onto the Myer board. Myer listed on the ASX in its own right in 2009 with an issue price of $4.10 and has never traded above it.
Myer’s big rival, David Jones, on January 19 said sales rose 2.3 per cent in the last six weeks of the key Christmas trading period, underpinned by a strong Black Friday and shoppers returning to physical stores.
The chain’s soon-to-be-former owners, South Africa’s Woolworths Holdings, said sales, including concessions, increased more than 31 per cent in the 26 weeks ended December 25 at David Jones, with its CBD locations bouncing back to life. Same-store sales gained 27.6 per cent in the half.
Deloitte Access Economics said on Sunday that Australian consumers will start clamping their wallets shut soon, as pressures from higher interest rates, falling house prices, negative real wages growth and higher inflation puts the brakes on what has been a buoyant 12 months for the retail sector,
Deloitte partner Stephen Smith said the good times in retail were coming to an end, and a crunch imminent. The lead-up to Christmas, and post-Christmas sales were the last hurrah.
“That’s essentially the peak in real terms,” he said on Sunday. “For lower income households it is starting to bite.”
Transactions data on credit cards, viewed in the industry as the most up-to-date measure, already show a slowing in spending.
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