While the Australian jobs market remains solid in the face of Covid Omicron, costs associated with handling the impact of the pandemic, inflationary pressures, labour shortages and supply chain problems are making life tough for the most important area of household consumption – retailing.
Retail sales actually rose strongly in the 4th quarter but not in December, according to the latest report for the month from the Australian Bureau of Statistics (ABS).
The ABS reported a 4.4% fall in retail sales in December (which helps explain much of the gloom) but sales were still up 4.8% year on year, while in volume terms (important for measuring GDP), sales jumped by an estimated 8.2% in the final quarter of 2021.
The December fall showed the impact of the first weeks of the Covid omicron onslaught and the confusion over testing, travel and social distancing.
While December was gloomy, the strong growth in retail volumes in the quarter should mean a solid positive contribution to 4th quarter GDP (released Wednesday week).
But the December half reports from retailer are telling a much gloomier story.
Household spending is the most important area of economic activity in the Australian (and other advanced economies) – it is the largest area of activity in the huge service sector and demand for goods from consumers (on line especially) has dominated retailing since the pandemic erupted in early 2020.
That saw retailing enjoy a sales and profits bonanza – especially so online in calendar 2020 and the first half of 2021.
But the early December 30 reports from retailers tell a story very different from those heady days of pandemic lockdowns and other restrictions in 2020 and early 2021.
Life is much tougher, costs have risen, sales have slowed or gone backwards a little and profit margins are under pressure.
While this week we will get the final full week for Australian interim (and the occasional full year) financial reports with more than 60 groups releasing figures it will be retailers that take centre stage.
Woolworths, Coles and Harvey Norman will lead the way with support from Super Retail, Adairs, Eagers Automotive and Lovisa are also due to report.
Kogan.com is expected to release a weak earnings report on Friday after already revealing a subdued set of sales and other data for the December half year.
These reports will confirm the challenges from Covid (Delta and Omicron) to retailing’s financial performance we have already seen from reports from the likes of JB Hi Fi, Wesfarmers (especially Kmart, Target and Officeworks) and Bapcorp (AutoBarn).
Temple &Webster has shown that online growth remains solid, but not at the levels of a year to 18 months ago.
Retail related stocks like Costa Group (fruit and vegetables) Bega Cheese, Flight Centre and Qantas will also report this week.
Shopping centre giant, Scentre releases its full year figures and property/retail operator Stockland is due to release its half year figures as well. Both will be good barometers for the entire sector.
Up to Friday around 60% of the ASX 200 had reported their interim or full year data.
Besides retailing, two big miners delivery full year figures this week – Rio Tinto on Wednesday and OZ Minerals later today. In view of the solid report from BHP, Rio Tinto’s figures will be closely watched while OZ Minerals figures will be compared to the weak half year report from Newcrest.
The AMP’s Dr Shane Oliver says that “Supply shortages both in terms of goods and labour are causing significant issues in terms of pricing and/or margin pressure (as evident from a range of companies including Boral, Aurizon, JB HiFi, Ansell, GWA and Wesfarmers) albeit they are a benefit to some (like Seek) and JB HiFi expressed some optimism that the higher prices will be short lived. ”
He says that so far beats are outnumbering misses by a wide margin at 47% of results to 29%, but there has been a slowing in momentum with only 59% reporting profits up on a year ago which is down from 75% in the last reporting season and 54% have raised dividends which is less than the average of 59%.
“However, reflecting the bias towards upside surprises 51% have seen their share price outperform the market on reporting day. Consensus earnings growth expectations for the current financial year have edged up from 13.1% to 13.3% helped by energy and financials,” Dr Oliver wrote.
Companies reporting this week will include Qantas, BlueScope, Lendlease and Sonic Healthcare, RWC, Reece, Ampol, Viva Energy, Coles, Woolworths, Lovisa, Bega Cheese, Costa Group, Cochlear, Monadelphous Adairs, Eagers, Super Retail Group, Altium, WiseTech, Stockland, Scentre, Kogan, APA, Western Areas, Adbri, Blackmores, Flight Centre, Ramsay Healthcare,, Rio, Stockland, Nine Entertainment, Southern Cross Media, Brambles, Charter Hall, Qube, Pilbara Minerals, Worley Parsons, TPG, Alumina, Seven Group Holdings, Harvey Norman and Medibank.
