With the reports in the past week from Myer, David Jones, Kathmandu and OrotonGroup we know Australian retailing had a tough six months or so at the back end of 2011 and early this year, but has it been as tough as much of the reporting and commentary suggested?
Yesterday, in the wake of the poor reports from David Jones and Katmandu, media reports talked about the dismal state of the Australian retail sector having been laid bare by those updates.
But is that the case?
Interim results from the retail sector this half year have not been uniformly bad or terrible, nor have they been overwhelmingly positive.
But they have ended for now the sharp rebound in retail stocks (David Jones up 15% till a week ago for the year for example, Kathmandu up 9%) that out ran the broader market.
The key ASX index for retailers, the Consumer Discretionary Index was up around 10% this year to its peak last Friday, before this week’s slide.
The broader market was up around 5.7% and much of the out performance happened as retailers started their reporting in early February.
It has been an expensive correction for a lot of investors and embarrassed retail analysts.
Like the rest of the economy, retail is patchy, but do the poor results of David Jones, Myer, Harvey Norman and Kathmandu and the sluggish performance of industry leader Woolworths indicate a widespread malaise?
A ‘no’ would be the answer because there have been enough solid profit results and sales performances to suggest that management and execution of retail strategy might also play a big part in the ultimate performance of a company, especially in the current uneven retail environment.
Another weak result came Friday morning from Melbourne-based Premier Investments, controlled by Solomon Lew.
Premier, the owner of retail brands such as Just Jeans and Portmans, suffered a 2.4% fall in first-half profit to $38.5 million, compared with the $39.4 million earned in the previous corresponding period.
Earnings from The Just Group, the company’s retail operations, fell 2.3% to $51.3 million in the period to January 28.
The Just Group includes the Just Jeans, Jay Jays, Jacqui E, Peter Alexander, Portmans, Dotti and Smiggle brands.
But not all results were as weak for the first half of 2011-12.
For example, take the performance of luxury goods retailer OrotonGroup in the first half.
Net profit up 4% to $16.1 million, up from $15.4 million in the same period in the previous year. But the shares were sold down for no real reason.
Total revenue rose 13.4% to $99.1 million from $87.4 million for the first half of 2010-11.
Like-for-like sales (the most accurate way of assessing sales performance) rose a solid 9%, with growth in its Oroton branded stores 5% higher and its Ralph Lauren chain up 6%.
Profit margins fell, but that is still a very good result.
And if you look at the results from Coles (owned by Wesfarmers), they were close to the industry best for the half year.
Coles had earnings growth in the half of 14.1% to $656 million, double the rate of revenue growth.
Its hardware chain Bunnings saw earnings up a solid 6.1% to $485 million.
Kmart and Officeworks reported earnings growth of 12.6% to $197 million and 9.1% to $34 million, respectively.
But it wasn’t all success at the Wesfarmers retail empire; Target’s earnings of $186 million were down 9.7% compared to earnings in the first half last year.
The reason: lower customer numbers and reduced margins due to heightened promotional activity in the market.
That sounds very much like the problems at David Jones and Myer, not to mention Harvey Norman.
The Kmart improvement (under Guy Rossi, a former McDonald’s executive) suggests that department store activity isn’t all that hard when you do the simple things right, like lower prices all the time, getting rid of the ‘sales’ cycle and listening to staff and improving stores.
And still in conventional retailing we had a very good result from another tiddler in Noni B.
After miserable trading in late 2010 and early last year, the company’s management restructured and cut costs and fiddled with the retail offer of women’s fashionwear (at a modest price).
The outcome was a jump in net profit to $2.4 million in the six months to December, from $1.5 million in the six months to December 2010.
Its bigger competitor in this area Specialty Fashion Group was slow to move and saw profits collapse in the December half.
It is now restructuring by closing stores and trying to boost its online offering.
And The Reject Shop, which a year ago was battling to keep afloat after being hit by the floods around Brisbane (they damaged a newly opened huge distribution centre at Ipswich, costing the company lost sales and millions of dollars in costs), managed to keep its head above water in the December half year with a 4% rise in earnings to $16.6 million.
Directors said "Sales for the half grew by 6.1% from $275.9 million to $292.8 million. First quarter sales were significantly impacted by uncertainty over the timing of the reopening of the Ipswich distribution centre and restricted capacity to service stores.
"The positive second quarter comparable store sales of 1.0% reflected a strong seasonal trade supported by improving distribution capacity as the Ipswich distribution centre was progressively reinstated."
That small rise in same store sales compares with the 6% to 10% falls at David Jones and Harvey Norman.
Compared to the problems The Reject Shop faced in 2011, Myer, Harvey Norman and David Jones had it easy.
T
