Aussie industry months from ‘bottoming out’, analyst predicts

An analyst has a bleak prediction on what will happen to Australian retailers in the next few months and years.

An Australian analyst predicts retailers are only in the early stages of a years-long decline.

Aryan Norozi, an analyst from financial firm Barrenjoey, has looked at the performances of major US companies – like Best Buy and Macys – through the Global Financial Crisis to predict what will happen in Australia over the next few years.

He established there were three stages before recovery and while no two economic cycles are the same, Australia is “well progressed in Stage 1 of the GFC playbook”.

Sharing his findings with The Australian, the final stage (bottoming) was defined as occurring when consensus earnings-per share (EPS) downgrades became less severe.

An analyst has offered a bleak prediction for the near future of Australian retailers. Picture: Diego Fedele/Getty Images

“While Australia is well progressed in ‘Stage 1’ of the cycle, we believe it is too early to change our cautious sector view, given we are still in the early stages of the EPS downgrade cycle,” Mr Norozi told the publication.

“We believe US retailer share prices bottomed once the second derivative of analyst EPS downgrades turned positive (that is, less deep cuts). However, it took the US market around two years to find a bottom.

“With ASX retailers under­performing around 26 per cent since the December 2021 peak, we believe Australia is now well progressed in ‘Stage 1’.

“However, we believe we are still in the early innings of EPS downgrades with the ‘bad news’ likely to materialise over the next three to six months.”

Barrenjoey Capital Partners last month made significant earnings forecast cuts to discretionary retailers, with JB Hi-Fi one of the most at risk.

Dark sign recession is ‘definitely’ coming

Last month, senior investment adviser Adam Dawes said Aussies will “really begin to feel the bite” from the economic turmoil gripping the world.

Speaking to Sunrise he said the signs for the global economy were not good from previous rate hikes in the US – saying he believes there will “definitely be a recession in the US”.

“Since 1950, the US has had 15 rate cycle rises,” he said. “Out of those, 11 have ended in recession. They do not have a great track record.”

However, he said that Australia’s commodities like iron ore and gas, as well as its low unemployment might insulate us from the pain felt in other nations.

“We have 400,000 vacant jobs here. That will provide a safety net,” he said. “But it is the wage price inflation or wage growth that is the key to keeping inflation in check.

“People then have to go and find a new job. The employer has to pay more. That is more difficult as well.”