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Both The Reject Shop and Super Retail Group (SRG) have revised earnings forecasts for the financial year and have implicated political turmoil around the Federal Budget as a key factor in a sales downturn in May and June.
Super Retail Group, one of the best performed retail groups of the past five years, has issued three downgrades on its profit expectations since January as sales have cooled across all trading divisions.
In the current half, like for like sales have fallen by 2.1 per cent in SRG’s leisure division, and are virtually breakeven against 2013 in the sports division, with comparable growth of just 0.1 per cent.
Peter Birtles, SRG MD, said it is extremely disappointing to “further moderate” profit expectations for the full year, which are now forecast to be about five per cent above 2013 at between $107 million and $109 million.
Birtles said the group is confident that this revised profit forecast is the result of external factors “as opposed to any deterioration in internal execution”, blaming a fall in consumer confidence and spending on the Federal Government’s Budget.
“Sales across the group have been lower than expected over the last six weeks,” said Birtles.
“This reflects the significant downturn in consumer confidence since the Federal Budget, particularly across the lower to mid income families who represent the group’s core customers.
“Apparel sales in the leisure and sports divisions have been lower than the prior year, reflecting the warmer weather this year in autumn and early winter, and it is expected that the recent subdued sales performance will continue over the remaining two weeks of the financial year.”
Notwithstanding the current retail conditions, SRG remains committed to its long term growth targets and its plans to open new stores, refurbish existing stores, and to continue to invest in developing its supply chain, private brand, sourcing, multi-channel, and customer relationship capabilities.
Earlier this month The Reject Shop downgraded its full year net profit forecast to between $14.5 million and $15.5 million following tough retail conditions and flat sales from Christmas 2013 to the end of April 2014.
A further deterioration in sales of winter related departments and ranges impacted on May.
The Reject Shop pointed to a significant fall in sales following the Federal budget.
While continuing to hammer away for an unlikely cut to interest rates by the Federal Reserve Bank, the Australian Retailers Association (ARA) has reported disappointing sales in April, confirmed by Australian Bureau of Statistics figures, through to May and June.
There are some standout retailers in terms of sales growth, including Bunnings, JB Hi-Fi, and Coles and Woolworths, but most other retailers are struggling to better 2013 sales on a like for like basis.
Apparel retailers, including the discount department stores and even Zara, have seen consumers retreat in their spending in the last quarter, affected in part by what the ARA describes as “unseasonable weather patterns” and an apparent fear factor around the Federal Budget.
Other sales and profit warnings have been issued by The Athletes Foot, Florsheim Shoes, and Noni B.
The Federal Budget issue should not be entirely surprising, as figures show that household debt has been rising in the past year and any increases in household costs or decreased income would renew the cautious outlook of consumers.
While Deloitte Access Economics believes retail sales will grow by 3.6 per cent in the 2015 financial year, and the Federal Budget impact unlikely to be felt until 2016, consumers have clearly taken fright after the “budget crisis” rhetoric and the potential impact on household budgets.
Emerging talk of interest rates being too low and likely to rise on the next movement will increase consumer anxiety and maintain a brake on retail spending.
The current sales downturn is a serious problem for most retailers who are facing higher operating costs stemming for wage increases, lower buying power overseas on a less robust Australian dollar, and other cost increases.
Retailers are hoping that stocktake sales will generate renewed enthusiasm among consumers, and Deloitte contends that the sales dip following the Federal Budget is likely to be a temporary decline.
Russell Zimmerman, executive director of the ARA, said the retail industry needs to every effort made not to harm consumer confidence further, with a clear long term plan from Government to support consumers through future tax cuts and short term support from agencies such as the Reserve Bank of Australia.