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EXCLUSIVE: A major study of the Australian retail marketplace by Citigroup Global Markets has revealed that the first fiscal stimulus saved many retailers from disaster and resulted in cleaner than expected inventory levels.
They also concluded that one of the best performing retailers was JB Hi Fi who reported more than 20% growth due to the opening of new retail outlets and “stronger execution”. Among the weakest performers were David Jones and Clive Peeters.
Following a review of 22 listed retailers Citigroup concluded that despite the stimulus benefits, over 75% of listed retailers reported a slowdown in 1H09 sales, compared to 1H08. The best performing sector was supermarkets, which benefited from consumers eating more at home.
Sixty percent of retailers reported gross margin declines in 1H09 reflecting increased discounting. However, the operating de-leverage from the weak sales trends have had a larger impact on 1H09 profitability.
Industry inventory days fell by 1.1 days in 1H09, a solid outcome that will cushion 2H09 profitability said Citigroup. The retailers with the cleanest inventory positions are the supermarkets and full-service department stores. The slowdown in February reflected a pause in consumer spending between the Federal Government’s fiscal stimulus measures. Supermarkets and clothing were the only positive categories in the month said Citigroup.
The sharpest slowdown was in department stores and consumer electronic stores however this appears to have been turned around in late March and the first week of April when new stimulus packages started to hit retail stores.
Citigroup also said that the majority of retailers have reported both contracting gross and EBIT margins, driven predominately by increased discounting activity caused by the need to stimulate sales and maintain clean inventory positions.
They also said that discounting would continue during 2009 resulting in significantly reduced gross profit margins for retailers.
Among retailers to have witnessed significant gross margin changes is Harvey Norman say Citigroup who also predict that the $12.1 billion fiscal stimulus package will support retail demand through 2H09 with the majority of payments to be made in April 2009.
These benefits will target working families and are broader based than the December 2008 payments, where almost half the payments were made to pensioners. “We estimate retail growth will be boosted by 4.5-7.5 percentage points in March and April 2009” said Craig Woolford an analyst at Citigroup.
To see the full report download the attached Citigroup PDF now.
