The ASX retail sector has been in the firing lining during the coronavirus pandemic, but not all retailers have been treated equally. Government restrictions and resulting social shifts have advantaged some retailers but been a detriment to others.
Consumers are spending more time working, eating, learning, and relaxing at home. This has led to a shift in consumer demand towards home office equipment, technology, and education supplies. Baking challenges have replaced restaurant visits, leading to a shift in food spending.
Whether these changes represent headwinds or tailwinds depends on individual retailers’ offerings. Some have been better positioned than others to benefit from shifting consumer behaviours.
We take a look at 3 ASX retail shares that are thriving in the current environment.
Wesfarmers Ltd (ASX: WES)
Bunnings and Officeworks have seen strong sales growth as people spend more time at home. There has been increased demand for home improvement products, remote working and learning equipment, and office supplies.
Wesfarmers reports that it is well-positioned to respond to the consumer shift to online. It is leveraging the digital expertise of the Catch business, which was acquired in 2019. Drive and collect has been introduced at Bunnings and Officeworks, and supply is being fast-tracked for high demand items.
Kmart third-quarter sales growth has been broadly in line with 1H20, supported by strong growth in online sales. In-store sales momentum has moderated over the past month due to a decline in customer footfall.
Catch has made pleasing progress since the acquisition with active customers increasing 38% over the last 12 months. Strong growth in gross transaction value has also been noted.
Wesfarmers has taken action to ensure it has the balance sheet capacity to respond to a range of economic scenarios. It has partially sold its 15% interest in Coles Group Ltd (ASX: COL) via 2 separate transactions in February and March, crystallising strong returns. Wesfarmers now holds a 4.9% stake in Coles.
Wesfarmers is continuing to invest for the future by expanding its digital offerings and reinforcing the customer value proposition. Investment in Bunnings’ digital offer is being accelerated and focus on commercial customers increased. Kmart is also investing in its digital offer and reinforcing customer value in a competitive market. The digital offer is also being extended at Officeworks alongside an expansion of its range.
Disruption in customer shopping patterns means it is unclear whether current high levels of sales will continue. Given a high degree of fixed occupancy costs, a sustained decline in sales momentum could have a material impact on profitability for Wesfarmers’ businesses. Target continues to underperform, with plans to improve its performance accelerated. Further details will be provided once the strategic review is completed.
JB Hi-Fi Limited (ASX: JBH)
JB Hi-Fi’s third-quarter sales jumped thanks to the boom in working and learning from home. JB Hi-Fi Australia sales leapt 11.6% due to an acceleration in sales in late March as customers prepared for an increase in government restrictions.
The Good Guys sales surged 13.9% in the March quarter. Strong sales growth in Australia continued into April and early May at JB Hi-Fi Australia and The Good Guys. Customers are increasingly seeking new and additional appliances and technology to allow for working, learning, and entertainment at home.
New Zealand JB Hi-Fi stores and online operations were closed on 26 March. Its online and commercial businesses have resumed trading with fulfilment via delivery or click and collect. Sales in New Zealand declined 3.3% in the March quarter. The JB Hi-Fi New Zealand business does not make a material financial contribution to the Group, representing around 3% of FY19 sales.
JB Hi-Fi withdrew its FY20 sales and earnings guidance as a result of COVID-19 uncertainty. It has so far refrained from providing updated guidance given the current disruption to customer shopping patterns.
JB Hi-Fi says it is in a strong financial position and is taking a conservative approach to balance sheet management. It has received credit approval for an additional $260 million of committed short term debt facilities. JB Hi-Fi does not anticipate drawing on these facilities but considers it prudent to secure them in the current uncertain environment.
Coles Group Ltd (ASX: COL)
First it was panic buying, then it was baking challenges. The major supermarkets have been the major beneficiaries of coronavirus buying trends. Along with competitors Woolworths Group Ltd (ASX: WOW) and Metcash Limited (ASX: MTS), Coles has benefited from a surge in sales.
In the March quarter, Coles reported a 12.4% increase in total sales which reached $9,226 million. Supermarket sales were up 13.1% while liquor sales were up 7.2%. This marks the 50th consecutive quarter of comparable sales growth for supermarkets.
Social distancing measures led more Australian to spend more time at home which resulted in greater at-home consumption of meals and other household items. Significant demand was seen across all categories, particularly grocery, home & health, and meat. Supermarkets experienced strong transaction and basket size growth.
Online sales were temporarily suspended due to unprecedented demand, then made available only to the vulnerable and in need during isolation. Despite this temporary disruption, Coles Online sales revenue for the quarter grew by 14%. To meet the challenges of recent demand, Coles has hired an additional 12,000 team members.
Liquor was negatively impacted by bushfire smog over capital cities and floods in January and February, before seeing the impact of COVID-19 later in the quarter. Sales in liquor began to materially elevate in the latter part of March, however, when the Federal Government closed hotels, pubs, clubs, and licensed venue operators.
In the first 4 weeks of the fourth quarter, comparable sales growth for supermarkets has trended back toward the levels seen pre-COVID-19. During this period, Coles has seen an increase in basket size partially offset by a decline in transactions due to social distancing measures. Customers are purchasing fewer convenience products and moving towards cooking and baking from scratch.
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. 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.
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