Woolworths Ltd. (WOW) and Wesfarmers Ltd. (WES), Australia’s biggest supermarket chains, may report higher sales because shoppers continue to buy essentials as stalling consumer spending hurts clothing and electronics retailers.
Woolworths, Australia’s biggest retailer, will post fourth- quarter grocery sales growth of 4.8 percent tomorrow, according to the median estimate of three analysts surveyed by Bloomberg News. Second-ranked Wesfarmers may report expansion of as much as 6.3 percent on July 28, according to Credit Suisse Group AG.
The nation’s households are boosting savings and curbing spending amid natural disasters and falling home prices while the Reserve Bank of Australia maintains the highest official interest rates in the developed world to deal with a commodities boom. A slump in consumer sentiment this month, the biggest decline since the collapse of Lehman Brothers Holdings Inc. in 2008, is prompting people to scale back purchases of discretionary items such as clothing and electrical goods.
“People still need food and can’t put it off, so that protects Wesfarmers and Woolworths,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “Discretionary retail at the moment is a macroeconomic story, and it’s not a good macro picture outside of resources right now.”
Supermarket operator Woolworths may report a 6.4 percent increase in total sales in the quarter ended June, according to Craig Woolford, an analyst at Citigroup Inc. in Sydney. Woolworths gets 86 percent of its A$52 billion ($55 billion) annual sales from food, liquor and fuel in Australia and New Zealand.
“Overall Woolworths sales trends are likely to be encouraging, especially given a volatile retail industry backdrop,” Woolford, who recommends buying the stock, said in a July 15 report.
Woolworths shares have gained 1.5 percent this year compared with a 5.8 percent drop in the benchmark S&P/ASX 200 index. Perth-based Wesfarmers, which owns the Coles supermarket chain as well as Bunnings home improvement outlets, has slipped 5.8 percent in the same period.
David Jones Ltd. (DJS), Australia’s second-largest department store chain, on July 13 cut its profit forecast amid a sales slump, prompting a record 18 percent slide in its share price the following day. Larger rival Myer Holdings Ltd. (MYR) also expects earnings to decline.
David Jones, Myer
Profit after tax for Sydney-based David Jones will probably fall as much as 12 percent in the fiscal second half ended this month, compared with a May 11 forecast for a 5 percent increase, it said July 13.
An “unprecedented” drop in demand in the quarter ending this month may lead to an 11 percent plunge in sales, it said.
Myer on July 14 affirmed its May 11 forecast for net profit after tax for the 12 months ending July to be as much as 5 percent lower than last year’s A$169 million ($179 million).
“It’s fairly clear households are changing what they choose to spend their money on,” said Stephen Roberts, a senior economist at Nomura Australia Ltd. in Sydney. “With the savings, household balance sheets are actually in pretty good shape for when confidence returns.”
Harvey Norman Holdings Ltd. (HVN), Australia’s biggest electrical retailer, has posted five straight quarters of declining sales from stores open at least a year. The Sydney-based chain may post a 1.4 percent decline in annual revenue from its stores in the 12 months ended June, according to Morgan Stanley estimates.
Reserve Bank Governor Glenn Stevens raised Australia’s benchmark lending rate seven times between October 2009 and November 2010 as he sought to control price pressures from the nation’s biggest mining boom in a century.
Australia’s consumer sentiment index plunged 8.3 percent to 92.8 for July from a month earlier, the biggest decline since October 2008 and the lowest level since May 2009, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers taken July 4-9. Retail sales unexpectedly fell in May, led by declines on clothing and footwear spending, according to government data.
“If you happen to be a company involved in digging up parts of Australia and sending them overseas, the chances are things are looking pretty good for you right now,” Alexander Mees, an analyst at JPMorgan Chase & Co. in Sydney, said in a July 13 report. “If, on the other hand, you are a company with nothing to do with mining, it is more than likely you are finding trading conditions challenging.”
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