Credit rating group, Moody’s sees Australia’s major supermarket chains – Woolies and Coles having a solid first half of the 2020-21 financial year, thanks to the continuing threat from COVID-19.
In a note issued yesterday Moody’s home improvement and office supplies groups (Metcash’s Mitre 10, Wesfarmers Bunnings and Officeworks) will see slowing growth as the pandemic-driven renovation and home office boom cools.
Moody’s said credit metrics for retailers will be broadly stable for 2021 as they continue to benefit from increased time at home due to the coronavirus outbreak.
Moody’s said that combined comparable-store sales growth for supermarkets giants Woolworths and Coles has averaged 6.7% for the past four quarters, with peak growth in the third quarter of 2019-20 as consumers stockpiled goods in the first wave of the coronavirus outbreak, followed by increased in-home consumption as time spent working and studying at home increased.
Moody’s said long-term annualised growth should remain between 2.5% and 3.5% with inflation remaining as a credit positive.
“While on a quarterly basis either Woolworths or Coles may outperform depending on their respective marketing campaigns during the period, the five-year combined average is 3.2 percent, and removing the unusually strong performance in 2H20, it is 2.4 percent,” Moody’s said in Monday’s note.
Meanwhile, home-improvement and office-supplies sales growth at Wesfarmers Limited’s Bunnings and Officeworks is likely to slow.
“Extraordinary growth in (the second half of FY20) likely pulled forward sales from fiscal 2021 in some categories and resulted in incremental sales at Officeworks that may otherwise never have occurred, such as home office furniture and electronics,” Moody’s said.
Moody’s said underperformance by discount-department stores may detract from credit quality at the group level of rated retailers.
The discretionary retail environment may also weaken as the government winds down support measures.
“However, consumer price sensitivity amid worsening economic conditions could support discount-store sales,” Moody’s said.
On a day when the wider market rose, the note had little impact on the share prices of the big three – Woolies shares lost 0.6% to $36.49, Wesfarmers shares dipped 0.07% to $44.97 but Coles shares ended up 0,18% at $17.17.
