The retail sector has been under strain with the spread of coronavirus reducing consumer confidence and impacting sales. Multiple retailers have been forced to withdraw guidance in the face of these headwinds.
The recent market maelstrom has seen significant falls in the share prices of many ASX retail shares. But has the sell-off been overdone?
Here we take a look at four ASX retail shares with multiple recent director buys. Director buys can be a sign that those with the most insight into a company view its shares as undervalued.
Adairs Ltd (ASX: ADH)
Two Adairs directors have acquired an aggregate of 250,000 shares in the company over the last fortnight. Adairs is an omni-channel home furnishings retailer operating across Australia and New Zealand.
Adairs shares have fallen more than 80% from their February high of $2.62 and are now trading at 44 cents (at the time of writing). Last week, Adairs withdrew its FY20 earnings guidance and cancelled its dividend due to the uncertainty caused by the coronavirus pandemic.
The company reported that both Adairs and recent acquisition Mocka were delivering pleasing results for the first 11 weeks of the second half (up to 15 March). Adairs' like for like sales were up 7.1% with stores up 0.7% and online up 31.8%. Mocka online sales were up 18.1% over the same period.
Nonetheless, the retailer said the outlook for sales in Q4 has now changed materially. Given the unprecedented level and nature of uncertainty around medium-term trading conditions, Adairs considered it appropriate to withdraw its FY20 earnings guidance.
The company is actively managing its liquidity position. As part of its cash management planning, Adairs decided it would not be prudent to proceed with the 7 cent per share dividend announced in February. Actions are also being taken to maximise near term sales, reduce costs, manage working capital, and defer non-essential capital projects.
Harvey Norman Holdings Limited (ASX: HVN)
Two Harvey Norman bought an aggregate of 606,812 shares in the company over the past three weeks, including the purchase of 593,000 shares by Gerry Harvey. Shares in Harvey Norman have fallen 50% from their February highs of $4.87 and are currently trading at $2.42.
Last week, Harvey Norman announced that its Mayalsian stores have closed from 18 March to 31 March by government decree. The Croation store has closed from 19 March for a period of 30 days, and Slovenian stores have closed from 16 March until further notice from the Slovenian Government.
Wholly-owned company stores in New Zealand, Ireland, Northern Ireland, Singapore and Australia remain open for business as usual. Total sales by Australian franchisees between 1 March and 17 March increased 9.1% over the same period last year, and sales in New Zealand increased 12.9%.
Sales in Ireland increased 53%, however, sales in Northern Ireland were down 12.4% and sales in Singapore decreased 1%. Sales in Croatia were up 1% before the closure, while sales in Malaysia were up 19.5% before the closure of stores.
Myer Holdings Ltd (ASX: MYR)
Four Myer directors have acquired an aggregate of 1,263,236 shares in the company over the past few weeks. Shares in Myer have reached an all-time low of 9 cents, having fallen from a February high of 45 cents.
Myer has not released any market update as a result of coronavirus, however, is likely to be hit by the blow to consumer confidence caused by the spread of the virus. The company was also forced to close a store in Sydney's northwest after an employee was diagnosed with coronavirus.
In its half-year results released at the start of March, Myer reported a 36.5% dive in its statutory profit, with sales down 3.8%. Myer is in the midst of a 5-year turnaround program initiated by CEO John King which is intensely focused on reducing costs. The number of stores and space within stores is shrinking, and cuts to administrative functions have almost halved the space occupied by its 'support' office since King was appointed.
Myer's cost of doing business fell 2.6% in the first half while floor space fell 10%. The reduction in floor space is estimated to provide annual savings of $15 million to $20 million directly, plus other benefits through a reduction in staffing, maintenance, utility, and cleaning costs. Myer, however, will need to start to deliver growth at some point. The impact of coronavirus means this will be harder than ever.
Super Retail Group Ltd (ASX: SUL)
Two Super Retail Group directors have acquired an aggregate of 33,000 shares in the company over the past few weeks. Super Retail Group is behind stores including Supercheap Auto, Rebel Sport, and BCF.
Shares in Super Retail Group have fallen over 60% from a high of $9.76 in February and are currently trading at $3.43. The Group has not released an update on the impact of coronavirus, but its share price shows the market has downgraded its prospects in the wake of the pandemic.
Stores are likely to be impacted by the government restriction on groups of more than 100 people, but a reduction in consumer confidence will represent a greater threat. Goldman Sachs, however, recently rated the company as a buy with a target price of $11, although the broker notes that supply constraints and changes to consumer behaviour are now a key concern.
A substantial proportion of the goods sold by Super Retail Group are sourced in China, but with China seemingly over the worst of the coronavirus outbreak, supply is less of a concern.
