ASX retail shares recovered strongly from the COVID-19 market downturn as sales accelerated over 2020.
Online retailers such as Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW) have benefited from the shift to online shopping occurring as a result of the pandemic. This was reflected in FY21 results, but investors are now looking to the future.
The August reporting season revealed not only FY21 performance but gave some insight into how retail shares will perform as we cycle out of pandemic restrictions.
How have ASX retail shares performed against the market?
After a strong recovery from the 2020 coronavirus-driven downturn, ASX retail shares have had a mixed performance over 2021.
The Wesfarmers share price is up 12% year to date, marginally underperforming the All Ordinaries Index (ASX: XAO), which is 12.5% higher. Shares in Temple & Webster have gained 11.3% in 2021. However, the JB Hi-Fi share price is down 8%, while the Kogan share price has fallen a massive 45.7% in 2021.
Who are the retail winners this earnings season?
JB Hi-Fi delivered a winning 67.4% increase in profits, which reached $506 million. The electronics retailer reported sales of $8.9 billion for FY21, a 12.6% increase on FY20.
The company reported strong sales momentum through the year, with heightened customer demand for electronics and home appliances. It has continued to invest in its online and digital offerings, which have paid off — online sales were up 78.1% to $1.1 billion in FY21.
JB Hi Fi’s earnings grew 53.8% to $743.1 million, with earnings per share (EPS) up 67.5% to 440.8 cents per share. A final dividend of 107 cents per share was declared, bringing total FY21 dividends to 287 cents per share, a 51.9% increase on FY20.
Online furniture and homewares retailer Temple & Webster also reported record revenue, profit, and customers in FY21.
Full-year revenue increased 85% on the previous year to $326.3 million. Profit grew 165% to $14 million. Active customer numbers were up 62% year on year to 778k, with the pandemic accelerating the shift from offline to online that was already in progress.
Temple & Webster is focused on expanding its digital capabilities, including data personalisation and the use of artificial intelligence. The company is pursuing a high growth strategy in the short to mid-term, while the plan longer term is to leverage scale and grow profits in the longer term.
Retail sector behemoth Wesfarmers also performed strongly in FY21, with profits up 16.2% to $2,421 million. Bunnings, Kmart, and Officeworks delivered strong sales and increased earnings, leading to an 18.8% increase in Wesfarmers’ earnings before interest and tax (EBIT).
The company said COVID-19 continued to impact operations, but government stimulus measures have had a positive impact on sales during the year. Wesfarmers declared a final dividend of 90 cents per share, fully franked, bringing full-year dividends to 178 cents a share. This is 17.1% above last year’s dividends of 152 cents.
Wesfarmers warned that Bunnings, Officeworks, and Catch experienced moderating sales growth from mid-March as they began to cycle the strong demand experienced in the prior year.
The retailer said volatility in customer traffic resulting from lockdowns was also impacting sales growth. Disruptions and capacity constraints in global supply chains led to some inventory delays and higher freight costs.
Wesfarmers will adjust inventory management practices to mitigate the impact of supply chain disruptions on stock availability. Nonetheless, the board has also recommended a return of capital of 200 cents per share, subject to shareholder approval. If approved, distributions of approximately $2,268 million will be paid in December.
And the losers?
Kogan surpassed $1 billion in sales for the first time in FY21, but investors sent the Kogan share price tumbling when results were released.
The Kogan share price fell more than 15% in a day, even as the online retailer reported 52.7% growth in sales. Total sales were $1.179 billion, providing a compound annual growth rate of 46.2% since FY19. But this was not translated into profits, with net profit after tax (NPAT) of $3.5 million, well down from $26.8 million in FY20.
Profits were impacted by a write-down of PPE held by Kogan and additional logistics costs incurred due to warehousing and supply chain disruptions. The board has hit a pause on dividends to conserve cash for business investment and growth opportunities but says it has a strong balance sheet that supports planned growth initiatives.
What is the outlook for ASX retail shares?
Consistent with previous years, Kogan has refrained from providing earnings guidance for FY22 but committed to providing regular updates throughout the year.
July 2021 sales were 5.1% above July 2020 sales based on unaudited management accounts. Kogan’s earnings for the month were $2.1 million, reflecting high operating costs that the company says are progressively reducing.
Wesfarmers has noted earnings in its retail divisions during the first half of FY22 may be below the prior corresponding period due to the impact of continued trading restrictions. It anticipates that ongoing disruptions to supply chains and global supply constraints will create additional costs and impact stock availability in some categories.
JB Hi-Fi has also experienced some disruption and variability to sales due to shifting COVID restrictions. Australian sales for 1 July 2021 to 15 August 2021 were down on the equivalent period in FY21, although up on FY20. The retailer has declined to provide sales and earnings guidance in light of the ongoing uncertainty arising from COVID-19.
Temple & Webster has reported a strong start to FY22, with sales up 49% on last year. The company says it is continuing to experience strong tailwinds, including the ongoing shift to online shopping and increased discretionary income due to travel restrictions.
Temple & Webster plans to continue to invest in growth areas of the business with the ultimate goal of becoming the largest retailer (online or offline) for furniture and homewares in its home market.