Retailers have become the latest financial victims of the coronavirus market meltdown as multiple ASX retail shares withdraw profit guidance in the face of increasing uncertainty.
It is not just the spread of the virus that has ASX retailers concerned, it’s the economic fallout the pandemic is leaving in its wake.
Australia has experienced 30 years of uninterrupted economic growth. But that record looks to be under threat with thousands of jobs suddenly at risk due to restrictions on travel and social gatherings. Qantas Airways Limited (ASX: QAN) has stood down 20,000 workers while Flight Centre Travel Group Ltd (ASX: FLT) has announced the closure of 100 stores.
Hospitality businesses are reeling as customer numbers fall. Already under strain, many pubs, clubs, and restaurants will be forced to close due to the latest ban on gatherings of 100 people or more. The outcome is almost certain to be major job losses. With more people out of work, there will be less money available to spend.
For retailers, this means lower sales and earnings. So, here we take a look at 3 ASX retail shares to see how they are coping with current chaotic conditions.
Lovisa Holdings Ltd (ASX: LOV)
The Lovisa share price has plummeted nearly 65% in the current market turmoil as investors turn their backs on consumer discretionary shares due to recession fears.
Lovisa shares were trading at $12 in February but plummeted as low $2.42 yesterday, posting a one-day fall of over 44% as the retailer announced temporary store closures. Today, Lovisa shares have staged a comeback, surging 63% to $4 at the time of writing.
Due to the coronavirus outbreak, all Lovisa stores in France and Spain have been closed since Sunday 14 March. Spanish stores are expected to remain closed until the end of the month while French stores will remain closed until the middle of April as a result of the government imposed shutdowns.
Malaysian stores closed on Wednesday 18 March and are expected to remain closed until at least the end of March. In the US, 25 stores have closed or are closing due to local government directives for shopping malls to close. These stores are expected to remain closed until at least early April.
While other markets remain open and trading, Lovisa has seen declining sales with large decreases in store traffic in recent days. This decline, combined with store closures, has resulted in a significant deterioration in sales. Lovisa stated yesterday it was not in a position to reliably estimate the financial impact of these events in coming months.
Lovisa is currently operating 449 stores globally (including those that are temporarily closed), an increase of 60 stores on FY19. While the company plans to open further stores during the remainder of the financial year where it is already on site or holds committed leases, it is actively deferring store openings as a result of the conditions brought on by the coronavirus pandemic.
Accent Group Ltd (ASX: AX1)
Accent Group shares plummeted 25% yesterday after the ASX retailer announced sales had deteriorated significantly due to the adverse impact of coronavirus on consumer demand.
Since their February highs of $2.13, Accent Group shares had fallen 69% to be trading as low as 66 cents yesterday. Today, the company has seen a moderate recovery in its share price which is up 8% to 74 cents at the time of writing.
Unprecedented and uncertain conditions have had a significant impact on consumer demand, causing like-for-like same store sales to decline since the middle of February. Accent Group has seen a significant decline on last year in the first two weeks of March. Like-for-like retail sales in the first 11 weeks of H2 FY20 are down 1.2%.
Previously, Accent Group had forecast profit growth in the second half, based on the achievement of low single digit growth in like-for-like sales in the first 7 weeks of the half. Yesterday, the company withdrew its guidance and announced it no longer expects to achieve profit growth in the FY20 financial year.
In the current environment, the Group said it was focused on prudent management of costs including rents with landlords. Management is focused on leveraging the customer access it has through its large email database and ensuring the business is well set up to accelerate when environmental conditions normalise.
Adairs Ltd (ASX: ADH)
Adairs shares slumped 27% yesterday after the retailer released a trading update, withdrawing guidance and cancelling its interim dividend. Despite a moderate comeback today, Adairs shares have fallen over 70% from February highs of $2.62 and are now trading at just 70 cents.
Adairs withdrew its FY20 earnings guidance and cancelled its 1HFY20 dividend of 7 cents due to the ongoing uncertainty regarding the duration and impact of the coronavirus pandemic. The cancellation of the dividend was positioned as precautionary, a result of the Board focusing on maintaining strong liquidity and protecting long term shareholder value.
Whilst the Adairs Board says it is confident in the financial position and prospects of the company, it feels it is prudent to ensure cash is preserved until current uncertainties are better understood and can be successfully navigated.
Until recently, Adairs and Mocka were delivering pleasing results. For the first 11 weeks of 2HFY20 (up to 15 March), Adairs’ like-for-like sales (excluding Mocka) were up 7.1%. Stores were up 0.7% and online was up 31.8%. Mocka like-for-like sales were up 18.1% over the same period.
All Adairs stores and both Adairs and Mocka online platforms remain open. Nonetheless, the outlook for Q4 has now changed materially. Adairs stated yesterday that uncertainty in relation to medium-term trading conditions is unprecedented. As such, the company is actively managing its capital position.
Action is being taken to maximise near-term sales, reduce costs, manage working capital and defer non-essential projects. Adairs is also working with landlords to agree on sustainable occupancy agreements through this period.
Adairs CEO Mark Ronan commented, “we are reviewing the impact COVID-19 is expected to have on our trading performance and taking immediate actions to best position the business to navigate the emerging circumstances.”
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. 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.