Retailers have had not just a tough year, but likely one of the toughest periods in many years. Weak consumer sentiment, the rise of online retailing and supplier price differentiation has meant that revenues for many retailers have been falling. Speciality retailers such as OrotonGroup Limited (ASX: ORL) Speciality Fashion Group (ASX: SFH) and Premier Investments (ASX: PMV) have likely fared better, due to their exclusive and or niche products. Following is the list of factors to consider when looking at retailers’ reports this season. Comparable store sales – with new stores opening and others closing, retailers can show revenues…
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Retailers have had not just a tough year, but likely one of the toughest periods in many years. Weak consumer sentiment, the rise of online retailing and supplier price differentiation has meant that revenues for many retailers have been falling. Speciality retailers such as OrotonGroup Limited (ASX: ORL) Speciality Fashion Group (ASX: SFH) and Premier Investments (ASX: PMV) have likely fared better, due to their exclusive and or niche products.
Following is the list of factors to consider when looking at retailers’ reports this season.
Comparable store sales – with new stores opening and others closing, retailers can show revenues have increased due to an increase in the number of new stores. Retailers provide a comparison of same store sales from one year to the next, that makes it easier to see what their true growth performance has been, which usually excludes new or closed stores.
Price deflation/inflation – competition may force companies to reduce their prices, which would ordinaraily reduce their profits, but could offset that with more sales, higher turnover, or lower costs. The big supermarkets in particular Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Limited (ASX: WES), provide the price deflation or inflation numbers, which gives us an idea of how much they have cut or increased prices.
Net new stores – how many opened / closed. This number can give us a clue into the future performance of the business. If the company is still opening new stores, that shows that the company is still growing. We can also compare it to previous years, and to its competitors, which can show whether the company is growing at a faster or slower pace, and if its losing or winning market share.
Revenue growth – If the company has grown revenues, that’s usually a positive sign. Falling revenues on the other hand can be a major indicator that there’s some issues with the company’s strategy, and or its future.
CODB, or Cost of doing business – This number can show if the company’s expenses have blown out if it has risen, or whether the company has become more efficient at producing and selling its goods.
Gross margin change – A positive margin rise suggests the company may be winning market share against its competitors. A fall could indicate that may be tough for both the company and its competitors, or that the company is losing market share. It’s important to compare this number to that of its competitors.
Sales / inventory – Numbers that we may need to search the financial statements for, if management don’t explicitly provide them in their commentary. The levels of inventory and receivables on the balance sheet can give us a guide into whether the company has been able to sell its products or whether they are still sitting in warehouses and shops around the country. The difference between the growth in inventory compared to a change in sales could suggest on one hand inventory management may be suspect (if stock is building up), or that profit has been boosted by a one-time run down in inventory.
Outlook – Has the outlook improved, and has the company provided guidance for the next year?
The Foolish bottom line
While retailers aren’t expected to report fantastic growth and earnings this season, low expectations have likely been priced in. The outlook for the next 6 to 12 months will be all important.
The introduction to this series, and links to previews of other sectors can be found here.
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Motley Fool writer/analyst Mike King owns shares in OrotonGroup and Woolworths. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson