Retail stocks pasted as ABS reports slowdown

A surprise contraction in retail sales has taken investors by surprise, causing shares in retail stocks to tumble.

Retail stocks took a tumble. Pic: AAP

A surprise contraction in retail sales, which racked up the weakest growth in four years, took investors by surprise, causing shares in retail stocks to tumble and strip more than $200 million in value with the pressure now on retailer CEOs to deliver growth.

Nervous investors will now turn to the upcoming annual meeting season where chief executives will release trading updates for the first half of fiscal 2018 that on the most recent figures from the Australian Bureau of Statistics has shown a sudden slump in consumer spending across categories such as food, cafes, restaurants and household goods.

The annual meetings to occur this month include vacuum retailer Godfrey’s next week, The Reject Shop the week after and consumer electronics and white­goods group JB Hi-Fi on October 26, when shareholders will press for the latest sales performance and look for any weakness in the numbers as the $300 billion retail sector suffers a slowdown.

The spark was lit yesterday when the ABS dashed any hopes of a recovery in retail sales as ­national retail sales plummeted 0.6 per cent in August, and 0.2 per cent in July, snapping signs of a recovery in spending through the second quarter. That second quarter boost looks to have been a rebound from the cyclone that hit Queensland in March.

The reaction of the sharemarket was immediate as most retail stocks fell sharply, although they recovered some ground in the afternoon.

Retail markdown Share price percent change

Pizza chain Domino’s led the retreat, falling 1.7 per cent, with Myer down 1.3 per cent and Solomon Lew’s fashion conglomerate Premier Investments — which is also Myer’s biggest shareholder — down 1.24 per cent.

Other retailers such as Harvey Norman, JB Hi-Fi and Super Retail Group were also weaker, although consumer staple stocks Woolworths and Wesfarmers were stronger.

The fall in retail sales in August, which shocked analysts and economists who were tipping a market consensus 0.3 per cent gain, adds to the gloomy picture for retail which is going through one of its worst periods in decades as stagnant wages growth, fears of rising interest rates and soaring energy bills are crunching discretionary spending.

Food retail, which accounts for 40 per cent of all sales, recorded a 0.6 per cent fall, according to the ABS. Cafes and restaurants recorded a large 1.3 per cent decline. Non-food retail did little better with a 0.3 per cent dip overall.

UBS analyst Ben Gilbert said the ABS figures showed weakness across the retail sector with few positives.

“Softness was across the board with food, household goods and fashion all recording growth below the respective 12-month run-rates. Supermarket growth was just 2.4 per cent year on year, the weakest result since June 2016, while household goods growth softened to 2 per cent year on year.’’

Mr Gilbert said weakness in the supermarket category could flag a step up in discounting activity as the chains, Woolworths and Coles, chased customers and matched each other’s price cuts.

“The grocery channel had a weaker month, characterised by slowing growth across food, liquor and the independents channel. Given ongoing population growth, the softness would suggest pricing weakness.

“Our view is this weakness more so reflects inflationary pressures in fresh easing versus retailer discounting stepping up, with channel checks indicating the grocery channel remains rational,” he said.