If you can’t take the heat…

If you can’t take the heat…

A number of retailers have recently warned the market that warm weather and weaker consumer confidence after the Federal Budget are impacting trading. But how many of these retailers may be trying to use these temporary issues as an excuse for structural pressures?

As a consumer, it is easy to relate to the recent commentary provided by retailers.  It certainly feels like this autumn and winter have been unseasonably warm, while the negative commentary surrounding the budget was extensive.

But retailing can be a cyclical industry.  The weather is always changing and the Government prepares a budget each year.

In order to thrive a retailer must offer something unique and exhibit sustainable strategic advantages, whatever the weather. For high quality retailers, one warm winter may have an adverse effect on sales, but should not have a meaningful impact on the long-term prospects of the business.

The more individual retailers moan about the warmer weather, the more we question the strategic position of the underlying business.

By way of example, Pacific Brands (ASX: PBG) and Noni B (ASX: NBL) are two retailers that have recently provided market updates, and we wonder aloud about their structural challenges.

Pacific Brands – “A combination of challenging markets, declines in consumer sentiment and a warm autumn, which have been highlighted by other apparel and footwear retailers, have led to lower than expected sales growth and increased margin pressure.”

Noni B – “April and May sales were impacted by the unseasonably warm weather leading in to the winter season and reduced spending by Noni B’s core customers following the federal budget.”

It is interesting to note the management of both companies have regularly referenced cyclical factors in trying to justify mediocre performance.

And one cannot help but chuckle that, at precisely the same that Australian retailers are pointing to unseasonably warm weather as the culprit for weaker performance, other retailers in the US are pointing to unseasonably cold weather.

Only last month Walmart observed; “Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected”.

You can’t say this is a northern and southern hemisphere issue either because the nation of Italy recently reported that March industrial production declined by 0.5 per cent because, “summer came early this year.”

And the retailer Bebe noted; “Our preliminary third-quarter results were heavily impacted by the winter storms, unseasonably cold weather, and the greater than expected impact of the Easter shift”…

We’re not quite sure how much Easter shifts…

In successive December half-year results, the management of Pacific Brands has said:

2013: “Reported sales were down 6.6 per cent … primarily due to low consumer sentiment and business confidence and reduced sales from lower margin portfolio brands”.

2012: “The earnings decline was driven by reduced sales in challenging retail conditions with reported sales down 19.6%…”

2011: “Underlying sales declined by 2.3 per cent in line with prior guidance as retail conditions remained challenging.”

Meanwhile, December half-year results commentary from the management of Noni B were:

2013: “The women’s fashion market remains challenging, and we continue to manage the business as efficiently as possible, without compromising the service and quality that will provide long term growth.”

2012: Having achieved an after-tax profit of $2.4 million for the first half of FY2012, the company noted that “Consumer confidence remains challenging and we expect these conditions to continue into 2012”.

2011: “As already announced, low consumer confidence since the federal election has had a major impact on demand, and the cool, wet weather during early summer delayed purchases of our summer ranges.”

If there is one constant in the world it must surely be…weather.  Hot or cold, warm or cool, the best businesses don’t blame the weather for their woes.