Yesterday we had two very good examples of the sort of outlook that could be in front of the country’s retailers for the next year or so, if the forecasts in Tuesday night’s budget turn out to be anywhere near accurate.
David Jones and Myer, Australia’s two biggest department store chains, reported lower sales in their latest market updates, indicating shoppers remain reluctant to spend.
That was seen in the March quarter retail sales data out last week which revealed minimal growth for the period, and a small fall in the month of March for department stores.
That reluctance by consumers to spend is forecast to continue into 2012 by the Federal Treasury (and the Reserve Bank) because both say household savings are expected to remain around the current high level of 9%-10%.
As well the Australian dollar will remain high for the next year or so and that is exerting a lot of pressure on sectors of the economy such as manufacturing and tourism, and therefore forcing companies and employees to cut spending.
While employment and the investment boom are projected to continue growing strongly, they have had little positive impact on households, especially retailing, which was further hit by the impact of the first quarter floods, cyclones and bad weather.
But both retailers did report a flickering of sales growth in mid to late April, but it came too late to reverse the downturn for the quarter.
David Jones met analyst forecasts with third-quarter like-for-like (comparable or same store) sales down 1.3%, but more importantly it reaffirmed its expectations of profit growth in 2012.
The shares rose strongly to be up 16c, or 3.6%, at $4.61 at one stage before easing to close 11c higher at $4.56.
Myer reported a 3.1% fall in same store sales in the third quarter, but said there was "a gradual improvement" as the quarter went on.
The shares ended up 1c at $3.18.
From the market’s point of view, David Jones had the better result in the quarter.
Sales revenue was $411.7 million in the three months to the end of April.
Analysts had been looking for a 1% fall, compared with a rise of 1.4 % a year earlier and a fall of 2.7% in the second quarter.
David Jones reported "challenging trading conditions throughout February & March but (they) improved in April with Easter & colder weather".
Like for like sales were down 1.3% on a statutory basis, but the third quarter reporting season started a week later than in 2010.
The retailer said that comparing the same weeks in 2011 as 2010 produced a 3.2% fall in topline sales and a 3.1% drop on a like for like basis.
It said if the April trading conditions profit growth for the year to July could be above 5% (it’s already guided the market to expect profit up by between 0% and 5%) and the same for the full 2012 financial year.
David Jones CEO Mr Paul Zahra said, “There continued to be aggressive discounting by retailers throughout the quarter as they tried to address conservative consumer sentiment.
"Fortunately we have a strong business model and an experienced management team and we managed the key components of our business (such as inventory and costs) very tightly."
He said the better performing categories in 3Q11 were Contemporary Womenswear, Accessories, Menswear and Childrenswear. There was no discernable trend on a state-by-state basis, with all States reflecting the impact of cautious consumer sentiment.
Myer blamed the impact of the floods and bad weather in Queensland and Victoria for the sharp fall in like for like sales.
But it reaffirmed its full-year earnings guidance.
Myer said it expects annual profit to be down on the 2010 financial year.
‘‘We continue to expect NPAT (net profit after tax) for fiscal 2011 to be up to 5 per cent below last year’s NPAT of $169 million,’’ Myer said.
Myer said on Wednesday that total sales in the quarter to the end of April were $657 million, dragged down largely by falling prices for electrical goods.
Myer said Cyclone Yasi and the floods in Queensland and Victoria in January had cost it around $6 million.
Myer chief executive officer Bernie Brookes, said in the statement the period ‘‘continued to be characterised by a cautious consumer with an increased propensity to save’’.
But Myer had seen an improvement in the retail environment with, Mr Brookes saying in the statement,’ There was a moderate and steady improvement in sales as the third quarter progressed and we had a pleasing mid-season sale, which was ahead of last year".
Myer said it expected trading conditions to remain challenging during the remainder of fiscal 2011.
‘‘The electrical business continued to be impacted by ongoing price deflation in a number of electrical and console categories.
‘‘The sales performance excluding the electrical business was a pleasing increase of 0.9 per cent compared to last year. Sales excluding electrical were down 0.3 percent on a like-for-like basis.
‘‘Our decision to exit whitegoods and re-engineer the music business also continues to impact the like-for-like sales comparison, but going forward the move will result in addi
