Slowly, a surprise fall in retailing activity seems to be taking shape.
It could be a blip, or could be something more worrying, but a number of leading retailers have said they saw falls in demand and activity in the March quarter, especially March.
While economists still reckon March retail sales will be solid when the Australian Bureau of Statistics releases the data on Thursday, a poor update from another listed retailer raises the question of whether there’s something deeper happening in retailing at the moment.
While all retailers say the absence of government stimulus spending has impacted in the past two quarters, March seems to be turning out to be much tougher than expected.
While the economists are holding to forecasts (they might change in the next day), the reality from more retailer updates is different.
Now a key budget/mortgage belt retailer, Fantastic Furniture, has slashed sales and earnings forecasts after a downturn in third quarter trading conditions.
Fantastic joins the likes of Harvey Norman, Coles, Woolworths and Super Cheap Auto, which have all cut sales growth estimates after a drop in retailing demand in March and into April.
Fantastic said it saw a small rise in top line sales in the quarter, but same store or comparable stores fell in the March three months, much in the way same store sales at Coles’ Target and the Big W and the Australian consumer electrical chains of Woolies fell on the same basis.
Fantastic operates five chains: Fantastic Furniture, Plush, Original Mattress Factory, Dare Gallery and Le Cornu.
It is regarded as one of the better-run smaller retail chains.
Fantastic’s downgrade was substantial and triggered a sell-off of the company’s shares yesterday.
By the close the shares had lost more than 17% in value, or 64c, at $3.10.
Woolies in fact was forced to halve its sales growth estimates for this year, and the strength of the group’s unchanged 8%-11% growth in full year profit will be tested if fourth quarter sales for the same way as they did in the March quarter.
But for other retailers, such as JB Hi Fi and The Reject Shop, there’s no sign of any significant weakness on the share price telling us that investors have no concerns about their sales performance.
Not even the weak updates from Coles, Woolies and Harvey Norman prompted a sell-down in stocks like that.
The next updates to look out for that will tell us how demand is travelling will be from department store groups, David Jones and Myer.
They can be expected within the next 10 days or so.
But the Fantastic result was a surprise.
"Sales in the third quarter of financial year 2010 have been lower than expected, increasing by 1.3% over the corresponding period of last year, but falling on a like for like basis by 4%,’ directors said.
"FHL are of the opinion that our recent sales performance has been impacted to a large degree by a tightening of discretionary household spending.
"We believe this fall in purchase decisions is a direct consequence of continuing interest rate increases.
"The Fantastic Furniture Brand particularly, as a mortgage belt retailer, is susceptible to early changes in consumer spending patterns.
"With further interest rate increases being anticipated by financial markets over the coming period, we have now reviewed sales expectations for the fourth quarter down.
"At this point in time we believe that Net Profit After Tax for the full year to June 2010 will now be in the range of $19 to $21 million (2009 $18.6 million).
"Although these results are lower than our expectations, the FHL Group is supported by a very strong and robust Balance Sheet.
"We continue to invest in sales growth and the continuous improvement of operational efficiencies as we build our brands throughout Australia."
