Although the April retail sales figure of 1.1% was unchanged from the early estimate and a solid outcome, we saw more signs that conditions are getting tougher as the boost from the lockdowns – especially for online selling – fades and normality returns.
While the now two-week lockdown in Melbourne will influence retail sales and especially online selling, Wesfarmers’ vague trading update yesterday made it clear the halcyon days of double digit rise in sales of some goods are over.
Investors noted the vagueness and sent the shares down 2% to $55.11 on a day when the wider market was up more than 42 points or 0.6%.
There were few figures on sales growth – topline or same store comparisons which are two key measures to determine how a retailer is travelling – especially same store.
Wesfarmers warned in the update issued as part of an investor day briefing that has it was seeing volatile and negative sales at its major retailers Kmart, Target, Bunnings and Officeworks in recent months as the company struggles to match the sales surge seen a year ago.
And its Catch website is now seeing negative growth compared to a year ago – ie sales have fallen compared to levels in the lockdowns in 2020.
Wesfarmers told the market that its retail businesses had seen “significant volatility” in its monthly sales growth.
It issued a guarded outlook at the time of the half year figures release in February, while Coles, (which used to be owned by Wesfarmers) went full bore and told investors to expect months when 2021 sales growth could be sluggish or negative compared to a year ago.
Many of Wesfarmers’ businesses were major beneficiaries of last year’s lockdowns, with housebound shoppers flocking to Bunnings and Officeworks for DIY supplies and home office setups.
On Thursday Wesfarmers said sales growth had “generally moderated” in 20201and had even been negative in some months for some businesses (Catch).
CEO told investors that while was feeling positive about Australia’s economic recovery in the long term, short-term risks remained.
“Australia’s economic recovery and employment growth continues to lead the world and there are reasons to be positive about the outlook for household income and business activity,” he said.
“However, in the shorter term, there remains significant risk and uncertainties – the potential for future lockdowns, speed of community vaccination, further COVID mutations and the risk of punitive taxes and regulations that dampen job creation and investment.”
On a two-year basis, stripping out the effects of the pandemic, all of Wesfarmers’ businesses reported strong sales growth. (But analysts don’t want comparisons with 2019 sales – that’s ancient history).
Wesfarmers did say that online growth at the company’s retail businesses had also moderated in 2020 as more customers returned to shopping in-store, though overall online penetration has remained above pre-COVID levels
The company’s industrials businesses – gas, workwear, chemicals – have seen “good operating performances and pleasing trading,” Wesfarmers said in the update.
On its Kmart chain, Wesfarmers warned that it expects to incur lower costs of $60 to $70 million in Target relating to store closures and conversions (now down to 142 nationally) compared to an earlier estimate of $90 to $110 million.
The group has converted 81 Target stores to Kmart and K Hub stores to date, with initial trading results above expectations.
The plan was to “continue to drive the growth of Kmart” and “embed and stabilise the Target operating model while accelerating online and continuing to differentiate the product offer”. in other words, at last trying to separate what Kmart offers customers from what Target’s offering is for customers.