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Australian consumers tighten their collective belt (Part 2)

Australian consumers tighten their collective belt (Part 2)

Twelve interest rate increases to the RBA’s official cash rate to 4.10 per cent (as at 6 June 23), in combination with a large portion of fixed mortgages transferring to a variable rate, has impacted Australian consumers and we’ve seen several discretionary retailers use the “confession season” to downgrade their profit expectations.

Below, I highlight seven retailers which have seen an average share price decline of 26 per cent share for the calendar year to date (YTD).

Adairs (ASX:ADH, share price -39 per cent YTD), a retailer of manchester and homewares stated that the impact of rising interest rates and high cost of living had created a more subdued trading environment since April 2023, with lower traffic observed both in stores and online. For the 22 weeks to the end of May 2023, the Group’s sales declined 7 per cent, and expected Group Earnings before Interest and Tax (EBIT) has been cut by 15 per cent for the year to June 2023 from a midpoint of $75 million to $63.5million. 

Baby Bunting, Australia’s largest baby goods retailer, (ASX:BBN, share price -48 per cent YTD), lowered its net profit guidance for the 2023 financial year by 34 per cent from $21.6million to a midpoint of $14.25 million due to a significant downturn in consumer traffic in recent weeks. Sales during the company’s end of financial year promotion has declined by 21 per cent on a like-for-like (LFL) basis, leading to an expected decline in LFL revenue of at least four percent for the FY23.

With the key Mother’s Day period “softer than anticipated”, Dusk (ASX:DSK, share price -44 per cent YTD), a retailer of home furnishing products including hand poured candles, home décor, fragrances and gift solutions, has cut their expected EBIT by 38 per cent from $26.5 million to a midpoint of $16.5 million for the financial year to June 2023.

Best and Less (ASX:BST, share price -3 per cent YTD), which sells a range  of “value apparel” for families through a network of 248 stores, reported inconsistent trading conditions from March 2023, alongside a sharp decline in online sales, prompting a 42 per cent downgrade in profit guidance for the June 2023 financial half-year from a midpoint of $19 million to $11million. Brett Blundy’s BB Capital has just gone unconditional in its takeover offer of Best and Less at $1.89 per share.

Jeweller, Michael Hill International (ASX:MHJ, share price -15 per cent YTD), announced a 3.5 per cent decline in sales for the 20 weeks to 21 May 2023, with the Australian business recording a double-digit fall over that period. 

Wesfarmers (ASX:WES, share price +6 per cent YTD), employs 107,000 staff across Kmart, Target, Officeworks and Bunnings, as well as fertiliser, lithium and now healthcare. One of the most resilient business models in Australia, it is expected to experience solidly rising labour costs in the 2024 Financial Year.

Universal Stores (ASX:UNI, share price -37 per cent YTD), the trendy youth apparel retailer, is facing serious pressure as its customer base are reducing their spending due to higher rents, university-related fees, and the cost of living.

The Montgomery Funds own shares in Wesfarmers. This article was prepared 06 June 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Wesfarmers you should seek financial advice.

Access Part 1 of this blog below.

Australian consumers tighten their collective belt

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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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