Boost in spending brings winning outcomes for retailers

Some retailers are forging super profits in an economy propped up by a heady mix of government stimulus and personal savings.

Super Retail, owner of retail chains Supercheap Auto, Macpac, BCF and Rebel, produced its own set of spectacular sales and earnings forecasts. PICTURE: BRENDAN RADKE

JB Hi-Fi chief executive Richard Murray is in the midst of a retail boom and has joined the ranks of CEOs such as Gerry Harvey from Harvey Norman and billionaire ragtrader Solomon Lew to forge super profits in an economy propped up by a heady mix of government stimulus and personal savings.

Mr Murray on Monday revealed a set of trading accounts for the December half that would typically be the result of a thriving economy firing on all cylinders, not the pandemic-induced recession Australia is currently experiencing, and immediately paid tribute to an economy that the JB Hi-Fi and The Good Guys boss tagged as being in “remarkably” good shape.

He was followed by Super Retail, owner of retail chains Supercheap Auto, Macpac, BCF and Rebel, which produced on Monday its own set of spectacular sales and earnings forecasts for the first half of 2021 and which sets up the broader retail sector for a profit season that will likely shoot the lights out on investor and analyst expectations. Last week it was Mr Lew’s turn when his fashion empire Premier Investments predicted an earnings boost of as much as 85 per cent for the first half.

“No doubt there will be volatility continuing into 2021, as much as we don’t want it, I’m sure there is, but I think the economy is in a remarkably good position given the amount of things that have been thrown at it,” the JB Hi-Fi boss told The Australian on Monday after declaring first half profits were expected to spike by 86.2 per cent to $317m and The Good Guys to report a thumping 142 per cent profit gain to $126.5m.

“Given the negatives I am pleasantly surprised just how well the Australian economy is weathering this and the government has done a great job from that regard,” Mr Murray said.

Mr Muray told The Australian the raft of government stimulus since the emergence of the COVID-19 pandemic combined with high personal savings rates meant consumers had “money to spend” and were filling their homes with TVs, computers, fridges and new mobile phones. Australians stuck at home and unable to travel overseas also tipped in tens of billions of dollars into discretionary spending which the retail sector was gobbling up.

“I think Australians not travelling overseas and I guess also saving, with savings rates up, is more material that early withdrawal of superannuation, it is $60 billion of travel a year and on top of that and I think what the government stimulus has also done well which has softened the landing,” Mr Murray told The Australian.

He said this had greatly benefited and bolstered the Australian economy as it, and other economies around the world, fell into a recession in 2020 due to the COVID-19 pandemic.

Such was the demand from consumers and their eagerness to spend, Mr Murray said in terms of his own business, which includes The Good Guys chain, there had been strong sales across all categories, which he had never witnessed before.

“It has actually been remarkably strong across the board, and I have actually never seen this consistency of strength across the business. Yes, there has been some standouts at different times when people were mobilising working from home … which says to me that consumers have money to spend and are buying a new TV because they are spending more time at home or a new computer as they are working from home or there were periods when people were trying to store more food.”

It is a similar story at other retailers such as Harvey Norman, Nick Scali, Shaver Shop, Premier Investments and Adairs which have booked record sales through 2020 despite many of their stores being closed at times due to the pandemic. Online pure-play retailers have also shined, like Kogan.com and Catch Group, soaking up consumer savings and stimulus payments.

Unlike many other retailers across the economy, JB Hi-Fi’s profit surge came without reliance on any support from the federal government’s JobKeeper guarantee scheme. The JB Hi-Fi group employs around 13,000 team members across 314 stores.

The preliminary results for JB Hi-Fi come as the retailer has squeezed far larger profit growth from its sales, which lifted 23.7 per cent to $4.94bn, according to the unaudited figures released on Monday.

The retailer will publish its half-year results on February 15 in what is now expected to be a bumper reporting period for the nation’s retailers. Shares in JB Hi-Fi rallied almost 5 per cent to $53.20 in midmorning trade and later closed up $1.93, or 3.8 per cent, at $52.70.

Huge demand

Super Retail unveiled its own trading update on Monday, underlining the huge demand through the coronavirus pandemic for gym equipment and other fitness gear as well as pent up demand for recreational products for boating, camping and fishing which has started to be fed into the retailer as travel restrictions were eased across most Australian states and cities.

Super Retail also pledged to repay the JobKeeper payments it received during the first half of the financial year after flagging a 201 per cent rise in net profit for the period. In a statement to the ASX the retailer said it expects normalised profit for the 26 weeks to Boxing Day of between $174m and $177m, up 135 per cent to 139 per cent on the prior year.

Group sales lifted 23 per cent to $1.77bn while sales on a like-for-like basis grew by 24 per cent. Based on this performance Super Retail expects to hand down a statutory net profit after tax of between $170m and $173m, a potential increase of 196 per cent to 201 per cent on the same period in 2019. Online sales increased by 87 per cent to $237m.

As a result, the group said it intended to return the $1.7m in JobKeeper support it received during the 26 weeks, as the federal government moved to help businesses hit by the pandemic.

“Since our last update to the market in October, the group has continued to perform well,’’ said Super Retail CEO Mr Heraghty. “We are particularly pleased with our record online sales over the November cyber weekend and strong Christmas trading. This has culminated in a record first half performance for the group.”

The best performer among its divisions was Boating Camping Fishing (BCF), which is set to post like for like sales growth for the first 26 weeks of 51 per cent, followed by Supercheap Auto whose same store sales were better by 20 per cent for the period.

“While we remain cautious on the outlook for the second half given the uncertain economic environment, the group has a resilient business model, underpinned by powerful brands with market-leading positions in growing lifestyle categories, an active customer base of 7.1 million loyalty club members and a conservative balance sheet with a strong cash balance and no net bank debt.”

Shares in Super Retail responded mutedly, and closed down 1 per cent, or 12c, at $11.63.