The share prices of big name retailers Kathmandu Holdings Limited (ASX:KMD), Myer Holdings Limited (ASX:MYR), Kogan.com Ltd (ASX:KGN), JB Hi-Fi Limited (ASX:JBH), Super Retail Group Limited (ASX:SUL) and Premier Investments Limited (ASX:PMV) have all edged lower in January, based on market concerns that higher than anticipated Black Friday and Cyber Monday sales in November may have come at the cost of lower trading during the December festive period.
According to ABC News, National retail sales for November were $27.1 billion, indicating seasonally adjusted growth of 0.4% over October. This was slightly ahead of economists’ consensus forecast of 0.3% growth.
However, it could signal a change in the retail calendar, with consumers simply doing more of their Christmas shopping in November and foregoing the traditional Christmas and Boxing Day sales.
This fear seems to have borne out for Kathmandu. Despite recording strong sales growth over the first fiscal quarter of FY19, a disappointing Christmas and Boxing Day period forced Kathmandu to downgrade its profit guidance for the six months ended 31 January 2019. Its shares plunged 14% on the day of the media release, and are currently down almost 18% overall for January.
The negative effects of the Kathmandu profit downgrade quickly spread to other companies within the retail sector. The share price of Super Retail Group, which owns Rebel Sport, Supercheap Auto, BCF and Macpac, has slid 8% lower during January, while Premier Investments, which owns the Just Group of brands including Just Jeans and Peter Alexander, is down almost 5%.
The share price of home-grown former e-commerce market darling Kogan has been struggling since October, after the company revealed that changes to the GST law that came into effect on 1 July 2018 were severely hampering its ability to compete with foreign websites.
Global Brands revenue for 1QFY19 declined by 27% against the prior comparative period, a result the company blamed on the apparent ability for overseas websites to avoid having to pay GST. Anticipated lacklustre December retail figures have only compounded Kogan’s woes, and its share price has so far edged 6% lower in January.
With Australian consumer spending expected to continue to soften over the short term due to slow jobs and wages growth and the negative wealth effect of falling house prices, it is difficult to recommend an investment in the retail sector.
However, retailers that could still perform well during this period might be those that sell higher margin, high end electronics or whitegoods. Although a weaker economy will limit households’ abilities to purchase luxury brand items, these are still the types of products that shoppers might choose to buy from traditional bricks and mortar retailers rather than online. High freight costs, as well as the desire for personalised advice, means that sales of these products are less likely to be gobbled up by international e-commerce giants like Amazon.
This is why I still like the prospects of JB Hi-Fi, especially over most fashion retailers. In October, JB H-Fi reaffirmed its FY19 sales guidance, forecasting total sales of $7.1 billion, with $4.75 billion expected to come from JB Hi-Fi Australia and a further $2.15 billion from home electronics and whitegoods retailer The Good Guys.
In comparison to the other retailers I’ve mentioned, its share price has held up relatively well in January, only dropping 2.5% so far this month. It is my pick as the only one of these retailers that may actually outperform in 2019.
Motley Fool contributor Rhys Brock owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.