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Discretionary expenditure is starting to bite

Discretionary expenditure is starting to bite

The 13-interest rate increases by the Reserve Bank of Australia (RBA) in the 18 months to November 2023, combined with the bounce in inflationary expectations is starting to bite. Any company associated with discretionary expenditure missing its guidance from the slowing economic environment and cost-of-living pressures is being brutally dealt with by the share market.  

Recent examples include KMD Brands (ASX: KMD), owner of Kathmandu and Rip Curl, which has declined 67 per cent from $0.97 to $0.32 in the past year, and Cettire (ASX:CTT), the on-line luxury fashion retail platform, which has declined 77 per cent from $4.83 to $1.10 in the past four months. 

Overnight, Nike (NYSE:NKE), the world’s largest sportswear maker by sales, announced that revenue of its direct-to-consumer segment fell by 8 per cent in the three months to 31 May 2024 to U.S.$5.1 billion, whilst total revenue fell two per cent to U.S.$12.6 billion. From a geographical perspective, North America and EMEA were down 1.4 per cent and 1.7 per cent, year-on-year, to U.S.$5.3 billion and U.S.$3.3 billion, respectively.  

Highlights during the earnings call was the bricks and mortar traffic in Greater China (total sales for the May 2024 quarter was up 2.9 per cent to U.S.$1.86 billion) fell by “double digits” and that after seeing a ten percent decline in total revenue for the three months to August 2024, Nike’s total revenue for the year to May 2025 could be down by a mid-single digit percentage (or around U.S.$2.5 billion) from U.S.$51.4 billion in the year to May 2024. 

Nike are fighting the macro headwinds and increased competition from smaller rivals, including brands such as Hoka and On, and management is looking at cutting costs by an annualised $2 billion, including a two percent reduction of their workforce. 

After recently peaking at U.S.$123 in late-2023, the Nike share price hit U.S.$82.50 in after-hours trading, down 33 per cent in a little over six months. 

The good news from Australia’s perspective, according to ANZ’s Shayne Elliot, is that whilst times are incredibly tough for many families, only three of every 1,000 ANZ home loan mortgages are currently in financial hardship. That said, ANZ expects financial stress to increase over fiscal 2025. 

[Article was written on Friday, 28 June 2024]. 

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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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