The slide in consumer confidence since Treasurer Joe Hockey handed down his harsh first budget last month continues to damage more and more retailers.
Three retailers – The Reject Shop (TRS), RCG Corp (RCG) and Noni B (NBL) have – now in part blamed the downturn in consumer confidence since the Federal budget for earnings and sales growth downgrades.
As well Pacific Brands (PBG), the struggling apparel maker joined the downgrade club yesterday, blaming the impact of the warm weather and the drop in consumer confidence for sales and profit downgrades for the year to June 30.
Pac Brands shares were hit hard by the surprise downgrade, losing 8.9% to 51c, while shares in The Reject Shop after its equally surprising downgrade were also hit hard, shedding 12% to end at $8.05.
In all cases the slide in consumer confidence and spending triggered by the budget – both in the run up through late April and after it was delivered on May 13 – were highlighted by the retailers.
The retailers didn’t place all the blame on the budget – the unseasonably very warm autumn weather, especially on the east coast, is fingered also a major culprit (a record warm May in some states and markets, such as Sydney) for the weaker sales and earnings.
But the trio say there’s been a definite downturn in consumer spending since the budget.
There will be an update on the health of consumer confidence tomorrow when Westpac releases the results of its monthly survey tomorrow.
The Reject Shop was the most certain of the three in its commentary in a statement to the ASX.
While pointing out the damage done in May from the warm autumn, the company added, “Further, while the first week of May remained solid in sales terms, it is clear that sales for the balance of May were significantly affected by a drop off in consumer confidence consistent with generally reported retailing conditions during this period”.
The Reject Shop says it had expected to earn between $17 million and $18 million this financial year, but dropped the estimate to between $14.5 million and $15.5 million.
That will probably see a further cut in the final dividend.
The latest profit downgrade comes after The Reject Shop reported a near 16% slide in its half year profit, following a weaker-than-expected Christmas trading period.
Those woes seem to be continuing, with the added, unwanted bonus of the slide in consumer confidence after the budget.
TRS 1Y – Reject Shop cuts profit forecast
And last week RCG Corp, which distributed a number of well known clothing brands, especially sportswear (Saucony products for example) and owns the Athlete’s Foot chain of sports shoes shops told the ASX the combination of the warm autumn and the downturn in consumer confidence has forced it to cut profit growth projections by a third – from around 15% to 10%.
And Noni B blamed the two factors for its rotten May and a big downgrade of sales and earnings growth (after a miserable March quarter where the damage was self -inflicted). Noni B will report a 7% plus fall in sales for the year to June, plus a slide into losses after a small first half profit.
While the March quarter problems and the warm weather played a major part in the rotten second half to June 30, the tough Federal Budget and the immediate fall in consumer confidence was an unwanted additional negative that further hurt the company.
The women’s fashionwear retailer said sales in April and May were impacted by the warm weather "and reduced spending by Noni B’s customers following the Federal budget."
So great has been the damage from the current half’s trading woes that Noni B has been forced to look at selling itself to either the founding Lindl family of Sydney or putting itself up for auction to the highest bidder.
In its trading update yesterday, Pacific Brands, the maker of Bonds clothing and Sheridan bed linen and towels, cut its full-year earnings forecast blaming "challenging markets and declines in consumer sentiment".
The company said it expects its full-year earnings before interest and significant items to be in the range of $90 million-$93 million for the year ending June 30.
That compares with the guidance at the time of its interim results when it "implied" full-year EBIT before significant items of about $105 million. It said it expects sales growth of about 3% compared with the previous year.
"A combination of challenging markets, declines in consumer sentiment and a warm autumn" helped contribute to "lower-than-expected sales growth and increased margin pressure", the company said in a statement to the ASX yesterday.
And the company warned that net debt is now expected to climb to about $250 million-$260 million this financial year because of "reduced earnings, higher working capital and capital expenditure and additional restructuring cost".
