Retailers such as Super Retail and Nick Scali post sales boost
Corporate Australia is rewriting its COVID-recovery playbook as consumers and business get pumped up by the promise of ultra-low rates for years.
A resurgent economy is driving a fresh round of upgrades through corporate Australia, as consumers and business are being pumped up by the promise of ultra-low interest rates locked in for years.
Dozens of business leaders talked up the outlook for their sectors — from retail to property, media and construction — at the Macquarie Australia investment conference, highlighting an economy rapidly on the mend a year on from the COVID financial shock.
The annual conference is closely watched, coinciding with “confession season”, which gives investors the first insight into the sales performance of listed companies ahead of the end-of-June financial year.
“While COVID-19 continues to present challenges, the business environment has no doubt, improved considerably versus our expectations, even three months ago,” said Grant Kelley, the chief executive of shopping mall operator Vicinity Centres, including Melbourne’s mega-mall Chadstone.
“Consumer sentiment has improved, and the Australian economy has largely emerged from the pandemic evidenced by, among other things, rising house prices, the unemployment rate returning to pre-pandemic levels, and job advertisement, at 13 year highs,” Mr Kelley said.
His comments came as Reserve Bank governor Philip Lowe on Tuesday maintained that the cash rates will remain at near zero for at least another three years.
In his monthly update following the meeting of the RBA board, the central bank boss Dr Lowe said “the economic recovery in Australia has been stronger than expected and is forecast to continue”.
Dr Lowe unveiled a sharply upgraded economic outlook which included a forecast that now predicted growth to lift by 4.75 per cent over 2021, versus 3.5 per cent previously at the same time unemployment was forecast to drop to 5 per cent by the end of this year.
For Super Retail Group chief executive Anthony Heraghty, whose chains include Supercheap Auto, camping chains BCF, Macpac and sports goods play Rebel, there was still a willingness for consumers to maintain their elevated spending even as stimulus payments rolled off.
“Consumer confidence is strong, domestic spending is clearly in play and we are lucky enough to maximise that opportunity with that tailwind,” he told The Australian.
It was a different story only six weeks ago. Leading into March there were fears for the fragility and health of the Australian economy, and especially discretionary retailers, as the multi-billion dollar JobKeeper wages program came to an end - leaving many businesses and consumers to fend for themselves.
The end of the wages subsidy on March 28 had the potential to seriously erode consumer confidence as businesses closed, unemployment ratcheted higher and households reined in their spending to conserve cash.
But several CEO’s across a wide range of sectors highlighted an Australian economy gliding ahead, not just slowly recovering from the ravages of COVID-19 last year. And it put Australia in the poll position to beat other countries in the growth in the year ahead.
“In general, the countries that have controlled the virus the best have seen the strongest recoveries with China and Australia outperforming over last year,” said Macquarie Group chief executive Shemara Wikramanayake.
“The US is likely to lead the way in 2021 as the fiscal stimulus and the rapid vaccine rollout allow reopening. But Australia is still expecting to this year outperform most other economies.
“Investment is occurring across sectors, including areas of traditional strength such as infrastructure and commodities.”
The more upbeat trading updates came from retails CEOs, as shoppers who turned on the spending taps last year while COVID-19 lockdowns have continued the trend in the first months of 2021.
Encouragingly, foot traffic in shopping centres was growing and retail sales is also on the rise as consumers have become more relaxed about visiting enclosed and popular public spaces.
Others to present include plumbing supplies major Reliance Worldwide’s Heath Sharp who cited “increased expenditure” on renovations. Mirvac’s Susan Lloyd-Hurwitz called out a lift in activity, while Rob Adams of funds manager Perpetual was seeing fee income up on the back of a rebound in its Australian equity funds. Companies including Worley, Viva Energy, Fortescue and Streadfast also issued bullish outlooks.
“I think the economic growth that we’re seeing in Australia really bodes well for our business and the opportunities that are starting to emerge,” said Bob Johnston, the CEO of real estate major and mall owner GPT.
Some, including Super Retail’s Mr Heraghty said there was little need for “promotional” activity through Easter trading season, which is retailing shorthand for discounting. This was helping to fatten profit margins.
Super Retail on Tuesday reported double-digit sales growth across most of its retail stores with the performance of its Macpac camping retail chain a standout.
Its CEO Mr Heraghty had been bracing for a retreat in activity as stimulus packages such as JobKeeper were ended, producing a lull in consumer spending, but what his retail stores have in fact encountered over the March quarter was continued growth.
“In November last year we were waiting for a step down in performance and certainly expected that when the latest JobKeeper came off, or had a suspicion that might happen,” Mr Heraghty told The Australian.
“But our run rate is holding and what we can conclude is you have got sustained consumer behaviour, people can’t travel, I think they are reappraising how they spend their leisure time and they are continuing to invest in our category whether it is sport, tinkering with the car or preparing the car, heading out bush and going camping.”
This was being achieved without the ongoing stimulus measures and Mr Heraghty said he was becoming more confident that what he was witnessing was a “behavioural led change” as opposed to a “stimulus led change”.
Nick Scali, a leading national furniture chain, unveiled an update and profit upgrade on Tuesday that reflected the robustness of the Australian economy and has seen its full-year net profits set to almost double as consumers continue to fill their homes with couches, tables, chairs, rugs and TV units.
The furniture retailer said as disclosed in February total written sales orders for the group grew by 52 per cent in the first half with this positive trading momentum maintained with growth in total written sales orders of 50 per cent through the third quarter, which includes same store written sales order growth of 41 per cent.
The retailer disclosed that written sales orders remained strong in April with growth of 242 per cent compared to April 2020. Notwithstanding container availability continuing to affect the company’s supply chain, fiscal 2021 year-to-date sales revenue growth is approximately 44 per cent to the end of April and is expected to continue through to the fourth quarter.
This sales boom has helped Nick Scali forecast for EBITDA to be approximately $120m and resulting net profit for the year to be in the range of $78m to $80m, an increase of approximately 85 per cent to 90 per cent on the previous financial year.
Further evidence of a resurgence in the Australian economy could come from additional company updates on Wednesday by Perth-based conglomerate Wesfarmers whose businesses such as Bunnings, Officeworks and Kmart are tied to consumer spending.
with Joyce Moullakis and Ben Wilmot
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